| Reciprocals have been around for many years, | | | | fact will usually be determined by periodic |
| but many times get looked over for more popular | | | | negotiations with the SAC. |
| types of insurance, most notably Mutual Insurance | | | | As far as tax advantages, all insurance |
| Companies( Nationwide, Liberty Mutual) and Stock | | | | companies, including reciprocals are regarded as |
| Insurance Companies(Allstate, Geico, AIG). | | | | corporations when it comes to federal income tax |
| However, in recent years there has been a rise | | | | purposes. This means that the insurance company |
| of interest in reciprocal insurance, especially as | | | | is subject to the double tax that is applicable to |
| more nonprofit groups search for the best means | | | | most corporations. Therefore, income is taxed |
| to insure their members without creating taxable | | | | once at the corporate level and taxed again when |
| income. | | | | distributed to the company's shareholders. |
| So what are reciprocals? Reciprocals are usually | | | | Reciprocals, however, have a unique tax |
| defined as a group of individuals, corporations or | | | | advantage over other insurance companies in that |
| entities who, as members, agree to exchange | | | | they are allowed to take a deduction for the |
| contracts of insurance (policies) and share their | | | | amount of its annual net income that is allocated |
| insurance risks among themselves within their | | | | to the subscriber SSAs. (Subscribers Savings |
| select group. Each member (policyholder) of a | | | | Account). |
| reciprocal exchange individually appoints and | | | | What is a Subscribers Savings Account? At the |
| authorizes a common attorney-in-fact to manage | | | | end of each year, the remaining premium will be |
| the affairs of the exchange. Therefore, they are | | | | deposited into the Subscribers Savings Account, |
| similar to mutuals except the people that manage | | | | which is held in the name of each active member. |
| the policies are not employees of the company, | | | | The company typically does not pay tax on the |
| but these "attorney-in-fact's" who manage the | | | | money deposited into the SSA accounts, allowing |
| reciprocals finances and deals with underwriting, | | | | the surplus balance to build faster than retained |
| claims administration, investments and any other | | | | earnings in a typical insurance company. |
| day to day operations. The attorney in fact is | | | | The reciprocal insurance structure has been used |
| usually paid a percentage of total profits for their | | | | by groups of professionals including doctors, |
| service. | | | | lawyers and architects and some industries, |
| Reciprocals also have a "subscribers advisory | | | | including pharmaceutical manufacturers, when |
| committee"(SAC), which is essentially a governing | | | | coverage they need has become scarce and |
| board. Like the attorney-in-fact, the subscribers | | | | extremely high priced. |
| appoint the body of persons to become the SAC. | | | | Though reciprocals represent a smaller number of |
| The SAC has general responsibilities for the | | | | insurance companies, they are a viable option and |
| finances and insurance activities of the reciprocal. | | | | shouldn't be overlooked when searching for the |
| For instance, the compensation of the attorney in | | | | right coverage for your specific needs. |