Protected Cell Captives
In my last blog post, I covered Protected Cell Captives under the Rent-A- Captive heading. I used to think this type of arrangement was complicated and expensive to administrate. I have found Protected Cell Captives to be neither complicated nor expensive when compared with paying regular Workers Comp premiums. Protected cell arrangements do not need to be a rent-a-captive only. They can be structured within any type of captive arrangement.
The two main benefits are that if any one cell files for bankruptcy, the other cells are not affected and can conduct business as usual. I had found the term “bankruptcy remote” to describe this type of capital safety. The other benefit is that if the capitalization of the cell is less expensive than without the cell, a profit-type motive exists.
In 2007, I became heavily involved with captives, but then did not pursue due to the fact that I had thought the IRS would strike down most captive arrangements for Workers Comp or any other type of coverage. The tax avoidance was something I thought would not be allowed. However, the IRS strikingly took the stance of the complete allowance of captives with a few caveats.