The Insurance Strategy Most Real Estate Investors Don’t Know Exists

Now, but do you mind if I would just go back a little bit? And again, including myself, so they heard about those terms, self-captive, self-insured, but probably it will help if we can understand a little bit better.

So let's say captive insurance, this is technically a self-insured product, right? Or you own this insurance company.

But you're

small enough, then you go to sell captive, which I think it's almost like Chihuahua called, like with many companies.

And this is sell captive.

Is that risk isolated to your company when you say product share? Or if my loss is larger, do I pass that loss to other neighbors in that

pool? How does that work? Yeah.

So, you know, there are definitely different flavors and styles of captives.

Independent cell captives, meaning, right, one insurance company owns or pays, right, the premiums to the company that's insuring themselves, right? So you got a very large REIT or institutional fund that's got millions of dollars of premiums that they spend every year.

If they set up their own independent captive, right, their premiums go to pay for their own claims and it doesn't go to anybody else's.

That's one captive structure we can work with.

The other one is the group cell where, yes, everybody's premium essentially goes into a shared bank account, if you will.

And at the end of the day, if any claims or expenses arise, it is claimed against that same shared bank account.

But then at the end of the day, whatever is left is essentially redistributed back to everybody as almost like an LP profit distribution at the end of every calendar year.

So in the group sell, yes, you know, unfortunately you are essentially at the helm of how the entire pool performs based on your performance back.

But at least it is a step in terms of retaining some form of equity on the insurance side without having to fund it yourself or without having to essentially spin up your own captive if you don't have the volume to do it on your own.

So it's almost like a best of both worlds where it also protects you in the event you have a bad claim or really catastrophic loss.

You can still, in some cases, get a return at the end of the year on your premium.

If the rest of the pool does well, you're still going to get a profit distribution.

You're not fully dependent on your own performance to dictate your returns.