Legal & Regulatory
Captive Insurance
A captive insurer is a wholly owned subsidiary or association-owned insurer formed to self-insure the risks of its parent or member organizations, providing an alternative to commercial insurance markets.
Last reviewed: May 2026 · Editorial methodology
Definition
A captive insurance company is a licensed insurance entity formed and owned by one or more businesses (or an association of businesses) primarily to insure the risks of its owner(s), rather than writing insurance for unrelated third parties as a commercial insurer would. Captives allow organizations to retain underwriting profits they would otherwise pay to commercial carriers in the form of premiums, access reinsurance markets directly at wholesale rates, customize coverage for risks the commercial market doesn't adequately cover, and create a long-term funding mechanism for retained risks. There are several captive structures: a single-parent (pure) captive insures only its parent company's risks; a group captive insures the risks of multiple unrelated companies in the same or similar industries; a cell captive (or protected cell company) allows multiple insureds to maintain segregated risk pools within a single legal entity. Popular captive domiciles include Vermont (the largest US captive domicile with over 1,000 active captives), the Cayman Islands, Bermuda, and Delaware. The IRS closely scrutinizes small captive insurance arrangements (particularly 831(b) election captives with premiums under $2.4 million) for potential tax abuse; the IRS listed certain micro-captive arrangements on its annual list of 'dirty dozen' tax scams from 2014–2023. Captive insurance is most suitable for large to mid-size organizations with sufficient risk volume to spread losses—typically companies with $5+ million in annual commercial insurance premiums.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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