A type of private insurance that is used by wealthy business owners to cover unlikely risks and that has been challenged by the Internal Revenue Service is proving to be beneficial as the coronavirus pandemic shuts down local economies.

The structure, known as a small captive insurance, allows business owners to self-insure against unlikely but costly risks. Because captive insurance has also created incentives for tax avoidance, the I.R.S. has put it on its “dirty dozen” list of the most abusive tax practices since 2014.

The criticism against small captive insurance vehicles has been that wealthy individuals use them to write policies for ill-defined or ludicrous events, knowing they will never have to pay a claim. Two famous cases that the I.R.S. challenged involved a dentist who used a policy to insure his practice against a terrorist attack and a jeweler who created a policy to cover a dirty bomb attack.

Given how improbable those events are, the premiums can accumulate tax free for years. That policy can then become part of the business owner’s estate plan, and the value of the policy’s assets can be passed on to heirs at a greatly reduced tax rate.