These terms describe the same tool and are used interchangeably. An 831(b) Plan, also known as Micro Captive Insurance or simply a Micro Captive, refers to a small insurance entity eligible for special tax advantages under Section 831(b) of the U.S. Internal Revenue Code. Such entities are taxed solely on their investment income rather than on the premiums collected up to a specified threshold. This tax structure is particularly advantageous for small to medium-sized enterprises seeking to enhance their risk management strategies with tax-deferred funds.
Why Micro Captive? The term ‘Micro Captive Insurance’ was derived from it being a smaller version of a traditional captive insurance company, which elects under the 831(a) Tax Code and caters to much larger enterprises to insure traditional risks. In contrast, a Micro Captive is designed to cater to the needs of smaller businesses, providing a cost-effective way to insure against risks that might be too expensive or impossible to cover in the conventional insurance market.