Cap insurance is a type of self-insurance where a company sets aside a large amount of money to cover its own claims. This can be a good option for companies that are paying high premiums for traditional insurance and want to keep more of their money.
How Does Cap Insurance Work?
With cap insurance, a company sets aside a predetermined amount of money, called the “cap,” to cover its own claims. If a claim is less than the cap, the company pays it out of its own pocket. If a claim is more than the cap, the company is responsible for the difference.
For example, let’s say a company has a cap of $100,000. If the company has a claim of $50,000, the company pays the $50,000 out of its own pocket. If the company has a claim of $150,000, the company pays $100,000 out of its own pocket and the remaining $50,000 is covered by its reinsurance policy.
Who Is Cap Insurance For?
Cap insurance is typically for larger companies that have the financial resources to set aside a large amount of money for claims. It can also be a good option for companies that are in industries with a high risk of claims, such as construction or manufacturing.
The Benefits of Cap Insurance
There are several benefits to cap insurance, including:
- Cost savings: Cap insurance can save companies money on their insurance premiums. This is because the company is not paying a premium to an insurance company, but is instead paying the claims out of its own pocket.
- More control: With cap insurance, companies have more control over their claims process. This is because the company is not relying on an insurance company to make decisions about claims.
- Tax benefits: In some cases, cap insurance can be used as a tax deduction. This is because the company is essentially self-insuring, which can be considered a business expense.
The Risks of Cap Insurance
There are also some risks associated with cap insurance, including:
- Financial risk: If a company experiences a large claim, it could be financially devastating. This is because the company is responsible for paying the entire claim out of its own pocket.
- Claims management: Companies need to have a good system in place for managing claims. This is because the company is responsible for investigating and resolving claims.
- Compliance: Companies need to make sure they are in compliance with all applicable laws and regulations. This is because the company is responsible for ensuring that claims are handled properly.
Should You Consider Cap Insurance?
Whether or not cap insurance is right for your company depends on your specific circumstances. If you are considering cap insurance, you should talk to your insurance broker or a financial advisor to get more information.
Conclusion
Cap insurance is a complex topic, and there are many factors to consider before deciding whether or not it is right for your company. However, if you are looking for a way to save money on your insurance premiums and have the financial resources to manage claims, then cap insurance may be a good option for you.