What Is an 831(b) Plan?
An 831(b) Plan is a powerful tax strategy that allows successful business owners and real estate investors to form their own captive insurance company to manage risk more efficiently. Under Section 831(b) of the IRS Code, these captives can elect to be taxed only on investment income—not on insurance premiums received (up to $2.8 million annually).
How It Works
Instead of paying premiums to a third-party insurer, your operating business pays tax-deductible premiums to a captive insurance company that you own. These funds can be used to cover a wide range of risks—especially those not typically covered or excluded by traditional insurance (like supply chain disruptions, tenant defaults, or legal/regulatory changes).
If claims are low, unused reserves accumulate inside the captive. Over time, this can create a tax-advantaged pool of capital that may be distributed later at favorable rates or reinvested.
Why It Matters for Real Estate Investors & Business Owners
- Tax Efficiency: Premiums are deductible to your business; the captive pays no tax on underwriting profits.
- Custom Risk Coverage: Insure against unique risks relevant to your business or portfolio.
- Asset Protection: Funds inside the captive are often protected from creditors and lawsuits.
- Wealth Transfer & Estate Planning: Captives can support long-term planning across generations.
It isn’t complicated, but it needs to be done correctly…
Establishing and maintaining an 831(b) Plan is not complicated, not difficult, and not expensive, but it is not a DIY strategy—it involves creating a licensed insurance company, complying with IRS rules, managing risk appropriately, and maintaining clear separation between your operating business and the captive.
That’s why we’ve teamed up with an outstanding third-party administrator to ensure that your plan:
- Is in compliance with IRS guidelines
- Has proper risk management and actuarial support
- Has robust recordkeeping and reporting
- Enjoys credibility and protection
The Bottom Line:
An 831(b) Plan is a powerful tool—but only when it’s properly structured, administered, and maintained. That’s why we partnered with an experienced, vetted provider to help our clients do it the right way from day one.
Want to see if an 831(b) Plan makes sense for your business?
Let’s talk—contact us here to explore how this strategy can align with your goals.
Want to learn more? Here are some additional 831 (b) Resources:
https://www.journalofaccountancy.com/issues/2013/mar/20126102