What is Reinsurance?

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The Truth About Reinsurance: Fact Vs. Fiction

Myth #1
Reinsurance companies are not generally accepted by the IRS.

Fact:
The IRS has specific sections of the tax code for the purpose of regulating Reinsurance Providers. (See IRC Section 831b election)

Myth #2
Larger Dealers must elect a non-controlled foreign corporation for their reinsurance company formation.

Fact:
The IRS has recently increased the annual written premium limit from 1.2 million to 2.2 million, allowing larger Dealerships to make the 831 election.

Myth #3
Reinsurance companies are expensive to form and require extensive capital contributions.

Fact:
Most reinsurance company formations are capitalized through their initial contract sales and formation/accounting expenses are usually around $3,500 per year.

Make sure that you are in control

Reinsurance is the ability for participants to share in the underwriting profits and investment income generated by the sale of F & I products.

Reinsurance Advantages of DOWC® vs. The Other Guys:

  • The DOWC® program is completely controlled by the dealer/shareholder
  • Dealers can self-direct investment strategy
  • Programs qualify for preferential tax treatment
  • Shareholders are not taxed until distributions are declared.
  • Distributions receive preferential tax treatment by declaring a qualified dividend or long-term capital gain.
  • Dealers can choose a domicile of his or her preference.
  • No custodial trust necessary; dealer can access earned and unearned premium.
  • Virtually no initial capital requirement necessary (Dealers first month contract sales will capitalize their company)
  • Ability to borrow earned and unearned premium in lieu of profit distribution.