831(b) Plans: The Self-Insurance Tool Most Owners Overlook

About This Blog

In 1986, Van Carlson was a high schooler in Fruitland, Idaho, paying no attention to the tax reform bill moving through Congress. Decades later, that bill would define his career. He spent thirty years in risk management, walking business owners down the traditional insurance channels, until 2008 changed how he saw the whole system. The Great Recession arrived, and he watched sound operators, the kind who sponsored little league teams and worked hard for everything they built, shut their doors and stand at their own auctions. Many of them had been his clients. They had insurance. It still did not cover the financial risk that took them down.

In this episode of Fountain of Vitality, host LaMont Leavitt sits down with Van Carlson, Founder and CEO of SRA 831(b) Admin, the largest 831(b) plan administrator in the country. Their conversation circles one stubborn idea most business owners never stop to examine. You are already carrying risk your insurance will not touch, so the only real question is how you choose to fund it.

 You Are Already Self-Insuring     

Van's central reframe is simple. Every business retains risk it cannot transfer to a carrier. You pay a premium to move fire, theft, and wind to an insurer, and then a long list of exposures stays on your own books. The only choice left is how to finance it, with pre-tax dollars or after-tax dollars. After-tax dollars means your operating capital, your savings, and your line of credit. Pre-tax dollars means a plan built for the purpose.

He compares it to a Health Savings Account for your business. You set money aside before tax, you expense it, and it waits for the unexpected expense that always seems to arrive. When he sold traditional policies, he reckons he told owners a claim would not be covered about forty percent of the time. If a year passes without a claim, the money does not vanish. It carries forward.

What 2008 Taught Him  

The owners who survived the downturn were not the ones who spent every dollar. They were the ones who set a portion aside. When the auctions came, those owners showed up as buyers. They picked up their competitors and grew while everyone else contracted.

Van saw the opposite pattern too, and he calls it a form of insanity. An owner books an eighty-thousand-dollar tax bill, buys a skid steer to take the accelerated depreciation, finances the equipment, and bets that next year beats this one. Then the debt rolls forward into a year that may be worse. Everything is fine until it is not.

An HSA For Your Business  

The 831(b) tax code was written in 1986 to give business owners an incentive to self-insure in a tax-favorable way. The plan has to look and operate like a real insurance company, which is the part most owners cannot manage alone. SRA 831(b) Admin runs that function the way a 401(k) administrator runs a retirement plan, so the owner stays inside the rules without becoming a compliance expert.

When policies expire, the unused premium becomes surplus. As long as it stays inside the plan, it is not taxable, and only realized investment gains get taxed. The reserves can be invested with the owner's own financial planner, inside the restrictions, so the money keeps working while it waits. Down the road, the owner can take on higher deductibles and let the plan carry more of the risk.

Risk First, Taxes Second  

Van is direct about who should not call him. If avoiding taxes is the only motive, the plan is the wrong fit and harder to defend. He points to the mid-2000s, when estate attorneys pushed these structures to ultra-wealthy families as an estate play, sold life insurance and annuities inside them, and drew the attention of the IRS. The code got abused, and the abuse nearly defined it.

His test mirrors a 401(k). You offer it because you care about the underlying goal, and the deduction follows. Risk mitigation comes first. The tax advantage is the reason it is worth doing, not the reason you do it.

Coverage Keeps Shrinking  

The market keeps making his case for him. Since COVID, owners pay more in premium and receive less in coverage. Pull a policy from five years ago next to this year's and the exclusions multiply. A policy that once read all risk slowly fills with carve-outs.

Some risks have no market at all. A flesh-eating screwworm returns to Texas livestock and triggers quarantines with no coverage behind them. Cyber breach and brand damage did not exist as concepts when the code was written. Your brand can take seconds to destroy and years to rebuild, and there is no policy waiting to write that check.

The Final Chapter  

Van frames the plan as the last chapter in an owner's playbook. First, you survive on cash flow. Then you fix operations. Then come the trusted advisors, the 401(k), the building. An 831(b) plan belongs after you have already done the responsible things, when you are asking what is left to protect.

He also points to a harder lesson from the pandemic. Many owners did not enjoy relying on a government bailout to survive because they had always relied on themselves. Setting money aside is how they take that reliance back.

Key takeaways:

• You are already self-insuring; the only question is how you fund it.

• Spending to dodge a tax bill is a form of insanity.

• The owners who set money aside are the ones who show up to buy.

• An 831(b) plan works like a Health Savings Account for your business.

• Surplus stays tax-deferred as long as it stays inside the plan.

• Risk mitigation comes first, and the tax break follows.

• If avoiding taxes is the only motive, the plan is the wrong tool.

• Premiums keep rising while coverage keeps shrinking.

• Your brand can take seconds to lose and years to rebuild.

• The right time to add this tool is after you have done everything else right.

Learn more about Van Carlson and SRA 831(b) Admin at 831b.com, where you can read industry case studies, check eligibility, and request a conversation with the team. Connect with Van on LinkedIn.

Listen to the full episode of Fountain of Vitality with Van Carlson, and ask yourself which 831(b) question your CPA has never raised.

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