The Truth About Reinsurance: Fact Vs. Fiction
Reinsurance companies are not generally accepted by the IRS.
The IRS has specific sections of the tax code for the purpose of regulating Reinsurance Providers. (See IRC Section 831b election)
Larger Dealers must elect a non-controlled foreign corporation for their reinsurance company formation.
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.
Reinsurance companies are expensive to form and require extensive capital contributions.
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.