Captives function similar to traditional insurance companies but with greater scrutiny because they are basically self-insured. An 831(b) Captive is ideal for high-net-worth individuals who operate small businesses. Small businesses are generally defined as businesses with fifty employees or less. If we think in terms of intellectual property or media assets we may have the tangible size of a small business but the reach of a mid market or major market (production) company. Similar to traditional captives, 831(b) captives offer decreased insurance cost, self-insured deductible management, direct access to reinsurance, tax deductibility of premiums and improved claims handling.In addition to these traditional benefits, 831 (b) captives have the added economic benefit of being income-tax-free. (It is taxed only on its investment income). This benefits both the business and captive owner and can be a useful vehicle in wealth transfer. Captives, as an attractive alternative to self-insurance, have long been used by many prominent companies to manage their insurance risks. While the captive concept has existed for centuries, it has gained widespread acceptance only in the past few decades. Today, the captive market is as active as it has ever been, with its benefits now attracting worldwide attention. Captives are widely used both domestically and abroad. A.M. Best estimates that there are more than 5,000 captives worldwide. While Bermuda, the Cayman Islands, Barbados and Guernsey have historically been the most popular domiciles for captive formations, many of the captives formed today are in the United States. In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are established to meet the risk-management needs of the owners or members. They are essentially a form of self-insurance whereby the insurer is owned wholly by the insured. Once established, the captive operates like any commercial insurer—i.e., it issues policies, collects premiums and pays claims, but it does not offer insurance to the public—and it is regulated as a captive, rather than as a traditional insurer per S. Hall an Industry Captive Claims Analyst.