Hunter NelsonOwner of Nelson Insurance Agency

Unlock Million-Dollar Insurance Savings: Your Captive Fund Explained

3 Feb 2026 · 1 min

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In this segment, Hunter Nelson explains the basic mechanics of a captive insurance fund using a simplified example. He assumes a company pays $1 million in annual insurance premiums and incurs $500 k in claims, leaving $500 k of surplus. A portion of that surplus—illustrated as roughly 35%—is allocated to a captive fund, while the remainder stays in the company's own reserve. Both the captive allocation and the retained reserve earn interest and dividends, causing the fund to appreciate year over year. Over time, as the company continues to pay $1 million each year and allocates a similar share to the captive, the accumulated balance grows, eventually allowing the company to recoup a portion of its premiums as a return on its own money.

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Now, if you were paying $1 million a year in insurance and you turn in $500,000 in claims, right now there's $500,000 left over. Some of it is going to go to the captive and some of it's going to stay in your fund and it's going to earn interest. It's actually going to appreciate. That money is going to earn dividends for you. And that money is going to stay there for next year. And every single year you pay in a million bucks, you, um, have some of it go to the captive. I'm saying 35%. It could be a lot less than that. 35% is a little bit on the high side. So I'm just giving out a number there. And then the rest gonna keep going there, you're gonna keep building up this fund, it's going to keep earning interest, you're gonna keep earning dividends. And now once you got that, you can start earning some of that money back, it's still your money, right?