Exclusions

Twice in two weeks I have reviewed professional liability insurance policies with an exclusion for:

"any claim arising out of or connected with... an entity... in which any insured is a director, officer, partner or principal stockholder."

So, a consultant who volunteers as a board member for a nonprofit who at the same time acts as an advisor to the entity, is not covered.

Main Point: Read your insurance policies (or have someone else read them) focusing on the exclusions. Consider how each impacts the operation of your business.

Beyond Simple Life Insurance

Anna Vander Broek, 12.16.08, 09:35 AM EST

Life insurance gives your family security if you die, but it can also help you while you're still alive.


You're young and invincible. The phrase "life insurance" probably means even less to you than the phrase "saving for retirement."

Even if you're not ready to buy life insurance for yourself (or are happy with the minimal coverage you may be already getting through your employer), it's still good to understand what life insurance is all about. It might be something you're interested in.


First, why would you want life insurance? If you have people who depend on you, such as a spouse or children, life insurance is used as a security measure to make sure they are taken care of if anything were to happen to you. If you're single and without debt, you don't necessarily need life insurance as a protective measure now.
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Life insurance can also be used as an investment opportunity.

It is complicated, but there are basically two different types; term and permanent. Permanent can be broken down into whole, universal and variable insurance.

Term life insurance is pretty much like any other form of insurance. You get exactly what you pay for. Term is probably the type of coverage you're getting from your employer. Since term life insurance is temporary, it's usually inexpensive. If you do have a family, term insurance is important and many will pay for it until their children are out of college (when presumably they can support themselves).

Permanent insurance combines insurance with an investment or savings option. The premium of permanent life insurance is going to be higher than that of term. The additional money is then invested.

How much life insurance do we need?

"How much life insurance do we need? I make about $100K; my husbank $50K; we have a daughter who is about 1 year old. We have no debt other than our mortgage which is $360K. I have a total of $985K term insurance and he has $600K term insurance but I think I may need more because I make more. Please advise."

Determining the right amount of life insurance depends on a number of factors. If you had no children, or your husband earned enough to support your current lifestyle for himself and your child, there might not be a need for insurance. But in your case the loss of your income would have a major impact on your family. Financial planners usually recommend you have enough life insurance to replace your income until your youngest child is 21. After that your widowed spouse will have only himself to provide for and will have had time to make a career change, if necessary, so that he is ready to do so.

You may qualify for a Social Security Survivor Benefit to replace some of that income. (See the Social Security Administration website to determine the number of quarters of work required for your current age.) Assuming you are age 35 and qualify, your family would receive around $1,760 per month in benefits until your child is 16. You also have not indicated if you have any savings which your spouse could use to supplement his income.

Not all of your income needs replacing, as some is lost to taxes. However you should consider whether you need to cover the non-monetary benefits you may get, such as health insurance and dental insurance. Also decide whether you want insurance to pay off your mortgage or provide for a college education.

Assuming you want to replace 75 percent of your income ($75,000). If you receive Social Security Survivor Benefits (21,000) you will need to replace $54,000 per year for 15 years, and $75,000 for 5 years (between your child's age 17 and 21, when no SSDB is received). With a 4 percent rate of return - about the average inflation rate - you would need a lump sum of $1.5million. Add in your mortgage and a college fund and the amount jumps up to about $1.9million.

This is just a rough estimate and you should consult a financial planner or insurance agent to make a more precise determination for both you and your husband. It is most important not to cancel any current policies before you have put new policies in place and remember that the younger and healthier you are, the less life insurance will cost.

Insurance Sneak Peek 2009

Brian Zajac, 12.22.08, 06:00 PM EST
After a difficult year, insurers are hoping for a rebound. Bullish and bearish analysts offer their outlook.

It is easy, in hindsight, to see that life insurers were out of favor in 2008. Is this a buying opportunity, or will these stocks continue the downward trend? Liquidity concerns have dampened investment income. Some insurers, faced with investment losses, are trying to raise capital through the Troubled Assets Relief Program. San Francisco analytical research firm StarMine steered us to two highly ranked industry analysts, one a bull, the other a bear, to comment on the outlook for the industry.

StarMine cites Colin Devine, Managing Director for Citigroup Investment Research, as one of the most bullish analysts tracking insurance stocks.


The Watch List

Devine's stock selections have all seen steep declines in the market in 2008, but they fit in with his buying opportunity stance. All trade at less than seven times the next 12-month earnings estimates, according to Thomson IBES consensus figures. He is somewhat cautious about the fundamentals of Lincoln National (nyse: LNC - news - people ) but considers it to be a takeover target.

Picks

Ameriprise Financial (nyse: AMP - news - people )
Manulife Financial (nyse: MFC - news - people )
Lincoln National

Forbes Industry: Insurance
StarMine Industry: Insurance
Analyst Name: Andrew Kligerman
Company: UBS
Outlook: Bearish

UBS Managing Director & Senior Research Analyst Andrew Kligerman is among the most bearish of analysts tracking the insurance industry, according to StarMine.

The Big Trend

It is going to be a binary year, says Kligerman. He explains, "There are going to be big winners and big losers." He adds that we still have not seen the worst out of commercial mortgage-backed securities. The insurers that are most exposed to these investments will feel the pain as investment losses erode capital. Portfolio quality is critical to get insurers through these tough times. Kligerman's stock picks and pans follow this view.

The Misplaced Assumption

Not all life insurers are created equal. That is, they do not manage risk equally. Yet the industry tends to move in unison in the stock market. Life insurers have been hit hard in the market in 2008. Closer detail to each firm's investment portfolio is needed.

The Bold Prediction

From a merger and acquisition standpoint, MetLife (nyse: MET - news - people ) and Prudential (nyse: PRU - news - people ) will have opportunities to take advantage of those insurers in search of capital. Kligerman likes both companies because of their sound capital levels, liquidity and they have diverse and defensive investment portfolios.

The Watch List

Principal Financial Group (nyse: PFG - news - people ) is one stock, in particular, that Kligerman thinks investors should avoid. He says that Principal has some pluses, such as top-notch global asset management and pension businesses, with talented management. His concern is that the company has a higher risk in its investment portfolio. He points out that Principal's commercial mortgage-backed securities and commercial mortgage loan-related investments represent 150% of equity, highest of its peer group, and its corporate bonds are vulnerable to realized losses.

Drinkers face life insurance hike

Middle class drinkers who consume more than their recommended weekly intake of alcohol face paying higher life insurance premiums.

Very heavy drinkers could be refused life insurance cover completely Photo: IAN JONES

New rules mean even moderate drinkers who consume a little and often - by drinking a glass or two of wine in the evening or with food - could be hit with higher costs.

The changes are likely to hit middle-aged, middle class consumers, particularly women, experts said.

Official guidelines say women should drink no more than 14 units of alcohol a week, and men 21 units – with one unit equivalent to half a pint of beer, a shot of whisky or a small glass of wine.

But the reality shows that many drink far more, with 10 million adults – 20 per cent of men and 30 per cent of women - drinking at a level which is "hazardous" to their health.

Insurers say they are reacting to increases in health-related problems such as cirrhosis of the liver, heart problems and certain cancers.

A woman who drinks 21 units a week, not far above the Government's guidelines, could end up paying an extra £50 a year.

A man drinking 35 units, equivalent to two and a half pints of lager a night, could pay extra premiums of up to £100 a year.

And a man who admitted consuming 50 units a week could see his premiums double from £150 to £300 because his drinking would be categorised as "harmful".

Very heavy drinkers could be refused cover completely.

Most life insurance firms are now checking doctors' notes for signs of alcohol use in order to make sure claimants are not lying about their alcohol use.

Several companies admit refusing to pay out claims if they have evidence that they were drink-related.

Companies including the AA, Norwich Union, Legal and General and Direct Line said they will increase premiums for drinkers.

A spokesman for the AA said: "Heavy drinkers are more likely to suffer from liver disease, high blood pressure and strokes. They are also more likely to have an accident, possibly fall into the road, and they are more likely to be involved in a fight."

Malcolm Tarling of the Association of British Insurers said: "Insurance companies are simply making a normal judgment of risk.'"

Choose a policy that suits your needs

28 Dec 2008, 0412 hrs IST, Ashish Gupta, ET Bureau
While choosing an insurance policy, the first step is choosing the insurance company. The factors that you need to look at are the promoters,
customer service, performance track record and the product portfolio. The next step is to understand your own financial needs, taking into account the life stage, risk profile, dependants, disposable income and liabilities. This will help you identify your protection and savings needs.

The amount of insurance required is a factor of your future earning capacity, your assets, and your liabilities. Insurance is not static and needs to be reviewed at different stages in life, depending on the changes in those factors. The amount of insurance required changes with factors like income of the family, assets and liabilities of the family, size of the family and the number of dependants in the family, the stage of life of the dependants - birth, education, marriage, and so on.

You need to think through all these to arrive at the suitable option and amount of life insurance cover. You should review your insurance needs at least once in every two years to take into consideration any changes in earning capacity, profile of dependents, cost of living, liabilities like housing loan etc to ensure that the life insurance cover is adequate.

Life insurance policies are long-term contracts. As such, it is important that you make the right choice of plan to meet your requirements . Unit-linked policies have several key advantages such as flexibility, transparency , simplicity, liquidity and efficiency in fund management . These policies are adaptable to the changing needs of the customers over their lifetime.

Participatory policies are less flexible and adaptable. Customers opting for these policies need to be certain of their milestone requirements and will have to time the purchase of their policy accordingly. Besides timing, they may have to buy multiple policies to meet different needs. These policies are restrictive in that they do not provide the option to rebalance the proportion of life insurance and savings within the policy.

Unit-linked plans are more efficient in their charge structure. The high level of disclosures required in these plans is an automatic check against an inefficient charge structure. At the same time, the level of awareness among consumers about the charge structures in life insurance plans is not very high.

The protection should provide for all the liabilities and future earning potential of the person insured. This will, at a minimum, ensure that the lifestyle of the dependants is not significantly altered if anything unfortunate were to happen to the person.

The savings portion should be determined by your financial goals. Life insurance as an investment instrument enjoys several distinct advantages. There is very little or no risk of capital loss, the long-term nature of the contracts ensures that investment horizons are long-term , thus leading to efficient funds management.

The regular nature of saving and the benefits of compounding ensure a substantial corpus over a period of time. The differentiating factors are flexibility, transparency and the customisation possibilities that are available in the product. These aspects are crucial to ensure that the product adapts to the changing financial needs of the customer. The structure of charges is specific to each insurer, which would derive that a seemingly high charge is not necessarily more inefficient than a charge structure that looks low. This is primarily because life insurance contracts are long-term contracts where charges can get levelled out over a period of time.

You, Your Employees, ERISA, and Your House

(Earlier this year I wrote this article for a human resources publication. I never heard if they actually published the piece. I looked on their website and couldn't find it. Waste not, want not.)

I assume, like most HR professionals, you have something to do with your company's employee benefit plan. Further, I assume you are human and therefore, sometimes make mistakes. Now, I'm sure your mistakes are mostly small. However, I bet, every once in a while you (like most of us) pull a doozy!

Let's assume that on a busy Friday, an employee comes in and asks that his or her insurance coverage be changed to add a new spouse. You make a note and then the phone rings. Then, another call comes in and two more people walk into your office. You look up, and it's time for you to go to a late meeting across town.

The next week comes and the employee's change never gets done. Who knows why? Maybe the cleaning crew knocked your note into the trash. The fact remains, you have an employee-spouse without coverage.

Two weeks later the spouse falls asleep at the wheel and hits a tree. There are $250,000 in uninsured medical bills out there.

Call your realtor, your house is about to go up for sale.

The Employee Retirement and Income Security Act, or ERISA, is the federal law passed in 1974 that governs employee benefit plans. Most people know it for its impact on pension plans. A lesser known provision makes administrators of employee benefit plans PERSONALLY liable for errors and mistakes. The act covers pension plans, group health insurance, disability coverage, dental, and any other employee benefit program an employer offers.

It is the "personally liable" part that gets most HR people's attention.

The issue is pretty straightforward. If you administer a health insurance or pension plan, you are liable for any mistakes you make - you, not your company, is liable. If you forget to add an employee to the health insurance, it's your house and bank account that is tapped to pay a claim. If the premium doesn't get sent and the policy is canceled, it's your assets on the line. Fail to make decisions in a prudent manner about the 401k plan, and guess what happens to your savings account?

The HR manager will have even more to be upset about when I mention the next kicker: In addition to personal liability, ERISA specifically forbids indemnification by the plan. If you make a mistake, your company might not bail you out. Insurance is the only third party solution to the personal liability provision.

The Fiduciary Responsibility Liability Insurance Policy is the solution to the ERISA problem. Also called a FRIP, the policy provides protection for "wrongful acts" that result in a claim against the administrator of benefit plans. Premiums range from a few hundred dollars to thousands, depending on the size of the employer.

By the way, many people confuse ERISA fiduciary liability with the ERISA bond requirement. The law mandates that employee pension and retirement plans have a bond of 10% of the assets (up to $500,000) to cover loss of the funds through embezzlement. Some fiduciary policies include the fidelity coverage. Most do not.

Some businesses and insurance agents confuse employee benefit liability insurance with the FRIP. Bad call! The FRIP covers errors and omissions in the administration of benefit plans. The employee benefit liability policy covers mistakes but excludes ERISA liabilities. The wrong claim against an employer with employee benefit liability could result in a "For Sale" sign going up in front of the HR manager's house.

Talk to your insurance adviser about your options. You may have to do a bit of homework to come up with the data on your employee benefit programs. Most small and medium sized employers purchase at least $1 million, but look at your own exposures and the premiums your insurer will charge for more coverage. Just don't let your ERISA exposures go uncovered.

Are you managing your life insurance policy correctly?

By: John Henry McDonald
If you own a life insurance policy that is coupled with mutual funds you might be in for a big unpleasant surprise.

Minimum life insurance premiums are often calculated using illustration software that allows an agent to use assumptions as high as 10.5 percent. The higher the rate of return means the lower the illustrated premium will be.

I don't think I have to tell you that the stock market has stripped away most of the returns for the last five years, thus making many variable universal life insurance policies in risk of lapsing. Over the last decade or so, lots of these policies have been sold as retirement plans, or private pension plans.

There are ways to accumulate dollars for retirement that can be withdrawn tax-free.

Most retirement plans are successful if the ongoing rates of return are at nine and 10 percent. That's just not going to happen. So if you're taking dollars out of a life insurance policy that has been funded by stock mutual funds you could be in real danger of a lapse.

And here's some more bad news: If you've been taking loans from your policy when it lapses, those loans become taxable as ordinary income. So all those retirement dollars that you've been taking can be taxable to you if your policy lapses.

In force ledger – This is a request to your life insurance company to give you the truth about the policy that you own.
And in force ledger will tell you if your current policy funding is sufficient to allow your policy to continue. And it will tell you how long you can go before the policy lapses.

You may find you need to add substantial dollars to your life insurance policy or that you need to take out less money that you've been used to receiving.

Life insurance benefits

San Antonio Business Journal - by Diane Moore and Sandra Lowe Sanchez
With the stock market in turmoil, Frank Woodruff, CEO of Sapient Financial Group, finds himself fielding calls from clients worried about their investments daily. Those who have whole life insurance in their mix are relieved that they purchased the high-priced product.

Now clients that shunned whole life years ago because other products offered better returns are looking at the product as stable and predictable — although costs haven’t come down.

“Whole life insurance is an incredibly solid investment,” says Woodruff. “But, back in the ’90s, when the tech stocks were going through the roof, whole life was the whipping boy, because it wasn’t providing as high of a return on investment as some of the riskier investments. Now, whole life is the ‘golden nugget,’” he adds.

Whole life is an insurance policy designed to be a cash reserve that builds up against the death benefit. Policy owners can even borrow against the cash value to help with temporary needs — such as college expenses. The policy’s cash value increases regardless of the performance of the insurance company. The policy also credits interest to the cash value of the account — sometimes resulting in dividends paid to the policy owner. Whole life insurance policies are tax-deferred, and upon maturity of the whole-life policy contract (usually at age 95 or 100), the cash value equals the death benefit.

Negative outlook for UK life insurance

The fundamental credit outlook for the UK life insurance industry is negative, in particular reflecting concerns about insurers' still strong but depressed capitalisation, weakening profitability and substantial exposure to equities, as well as the deteriorating economic environment, Moody's Investors Service said in its new UK Life Insurance Industry Outlook.
"The UK life insurance industry continues to maintain a robust capital position, despite the impact of falling equity markets, and the position of the strongest players remains very strong. However, the industry has clearly experienced some deterioration in capital over the past six to 12 months. Furthermore, if the economy does enter a relatively prolonged period of slowdown, with an associated depressed equity market, capitalisation levels are unlikely to improve markedly in the short-to-medium term, and further downside risk may remain material," said Simon Harris, co-author of the Moody’s report.
In terms of profitability, Moody's believes that most UK life groups are under considerable pressure. This reflects the difficult economic climate, with its implications for the volume of new life and pensions sales, combined with concerns about some of the systemically unprofitable business lines in the UK market
The rating agency does not expect these pressures to relent soon. Product risk also remains as a negative pressure as, despite new business sales increasingly focussing on low or no-guarantee products, the industry's historical focus on with-profits policies continues to dominate balance sheets in most cases.
"In terms of equity exposure, Moody's notes that most UK life groups have taken steps to physically reduce and/or hedge their equity exposures, compared with the positions they found themselves in during the previous market downturn. However, equity exposure generally remains high and, during a period of equity market pressure and market volatility, this asset exposure increases the risk profile of the industry," added Harris.
More positively, Moody's notes that the industry maintains very strong liquidity, such that companies are unlikely to be forced to crystallise current unrealised asset losses. In addition, asset-liability management techniques have improved substantially in recent years, improving the sector's ability to manage its risks during times of economic stress.

More UK adults without life insurance

The latest study has revealed that over a half ok UK adults do not have a life insurance policy as an effect of the current economic crisis.

Recent research from Barclays Financial Planning has found that the downturn of the UK economy has led to a fall in life insurance, income protection and critical illness cover.

The study found that 47 per cent of UK adults are not protected in the case of the loss of a job, illnesses or even death.

According to the study’s figures, 52 per cent of adults in the UK do not have life insurance and those who do, are unsure of what their protection covers.

The study found that more than 70 per cent of UK’s adults who have a life insurance policy are unaware of the level of payout they would receive in the case of making a claim.

Alison Tattersal, Head of Customer and Proposition of Barclays Financial Planning, found the figures “worrying.”

She said: “When finances are tight it is often responsibilities like protection policies that fall to a lower priority, and of course these policies protect outcomes that people don't want to think about.”

“People must consider the financial consequences of what would happen if they were unable to work, or their dependants' situation if they died, it would be far worse than any concerns they currently have over struggling to meet their outgoings,” she advised.

New Bailouts Cause Adverse Effects for Consumer's Life Insurance Policies

Last update: 7:00 a.m. EST Dec. 10, 2008
NORTH HOLLYWOOD, Calif., Dec 10, 2008 (BUSINESS WIRE) -- InsuranceBureau.com is helping consumers faced with tough questions on what to do with their existing life insurance policies. Life insurance customers have felt uneasy about the value of their life insurance policies and financial stability of their life insurance company in the wake of AIG's bailout.
Life insurance policies that are term life are a little easier to handle in these tough economic times. Term life insurance policies are generally inexpensive so consumers can purchase additional term life insurance with a more stable provider as a back up plan. If the cash component of a life insurance policy has lost value, financial experts suggest that it is in the consumer's best interest to stay with the current carrier or utilize available options to convert whole or universal life insurance policies into term without suffering penalties or taking the risk of losing coverage.
Insurance quotes can fluctuate in price due to variations in an insurance company's underwriting criteria, profits or losses of the previous year. The key to saving money on insurance quotes is to regularly compare insurance quotes from different carriers. Website visitors can use InsuranceBureau.com to compare insurance quotes.
InsuranceBureau.com is also a trusted source for unbiased insurance information for consumers.
SOURCE: InsuranceBureau.com

Your Business Insurance Renewals

For the past two years or so the insurance marketplace has offered great deals to those who push their insurance company and agent with the threat of competition at policy renewal.

Having two agents quote your insurance in a fair bid process has proven to be the only way to absolutely control your insurance costs.

The good times will be ending soon. I predict renewals next year 10% higher than this year in all coverage areas - property, liability, work comp, auto...

Consider a competitive bid process for your next renewal. You will be assured of the best coverage at the best price. Then you can decide which agent offers the best service.

~~~For a Free Copy of My Book, "How to Bid Your Insurance" send me a request by email Scott@insurance-coveragelaw.com~~~

Life insurance benefits

SANDRA LOWE SANCHEZ / SAN ANTONIO BUSINESS JOURNAL

With the stock market in turmoil, Frank Woodruff, CEO of Sapient Financial Group, finds himself fielding calls from clients worried about their investments daily. Those who have whole life insurance in their mix are relieved that they purchased the high-priced product.

Now clients that shunned whole life years ago because other products offered better returns are looking at the product as stable and predictable — although costs haven’t come down.

“Whole life insurance is an incredibly solid investment,” says Woodruff. “But, back in the ’90s, when the tech stocks were going through the roof, whole life was the whipping boy, because it wasn’t providing as high of a return on investment as some of the riskier investments. Now, whole life is the ‘golden nugget,’” he adds.

Whole life is an insurance policy designed to be a cash reserve that builds up against the death benefit. Policy owners can even borrow against the cash value to help with temporary needs — such as college expenses. The policy’s cash value increases regardless of the performance of the insurance company. The policy also credits interest to the cash value of the account — sometimes resulting in dividends paid to the policy owner. Whole life insurance policies are tax-deferred, and upon maturity of the whole-life policy contract (usually at age 95 or 100), the cash value equals the death benefit.

A little bit about life insurance

Term life insurance is the original form of life insurance and is considered to be pure insurance protection because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life and variable universal life which do build a cash value.

Term life insurance provides coverage for a limited period of time. After that period, the policy can be dropped or the insured can pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial amount of coverage at the lowest possible premium. The premium can be fixed for a period of up to 30 years.

Because term insurance is a pure death benefit, its primary use is to provide for covering financial responsibilities of the insured. Such responsibilities may include, but are not limited to, mortgages, consumer debt, dependent care and college education for dependents, and funeral costs.

term and investing the difference is a concept involving term life insurance and investment strategies that provide individuals an alternative to permanent life insurance. Generally speaking, term insurance premiums are considerably less expensive in the short term than permanent life insurance for an individual for the same benefit amount. Permanent programs are more expensive because they typically combine some form of cash accumulation with the insurance program as a single package. Consumers making use of the "buy term invest the difference" concept, separate their investments from their insurance by setting aside money every month equal to the premium that a permanent plan would require, then use a portion of this money for the term premium and place the rest in a tax-deferred investment vehicle.

A NON-tobacco using 40-year-old male, in good health, can purchase $250,000 of term insurance for a 30 year term at about $35 per month, while a 30-year-old male in the same category can buy the coverage for about $23 per month. Yet, according to LIMRA International, 44 percent of American households either don't own life insurance and believe they should, or own life insurance and think they need more coverage.

Term life insurance is the most affordable way to protect you and your family from a premature death.

Alan Jenkins is an insurance professional with Montgomery Agency Inc. For more informaiton, visit www.montgomeryagency.us.

Investors find insurance policies ‘safe'

After gold, life insurance policies are the second most “safe” investment avenues to investors in the country in the present financial condition, according to a recent survey by AC Nielson and Max New York Life.

Out of 1,000 respondents (unit-linked policy and other life insurance policyholders of various insurers) surveyed across six centres in the country between October 20 and 31, 59 per cent of ULIP holders said gold was a “safe bet” for investment, while 53 per cent said they considered life insurance products to be safe.

The same outlook was shared by other traditional insurance policyholders with 58 per cent and 56 per cent voting for gold and life insurance policies, respectively. Fixed deposits, mutual funds, National Savings Certificates and Public Provident Funds were the other safe investment areas, in order of preference.

Are you too risky for insurance?

While 49 per cent of the policyholders said they are holding on to their previous investments, 33 per cent of respondents said they are investing in life insurance and 22 per cent said they are investing in other safer options now.

Ten per cent of respondents said they have decreased investments in equity while an equal number said they withdrew savings from banks. Three per cent of respondents said they increased equity investment in recent times.

Across centres, around 90 per cent of the respondents claimed to have been affected by the financial crisis in some form or the other.

Almost 50 per cent of the respondents believed that it would take not more than six months for the financial crisis to end.

Stay current on insurance needs

Scott Flake

You probably don’t spend a lot of time pondering insurance.

And yet, you should think about it. By taking the steps necessary to meet all your key insurance needs, you can help protect your income, your family and your long-term financial goals.

In creating a comprehensive insurance strategy, you need to keep one key point in mind: your protection needs will evolve over time.

Consequently, at different stages of life, you’ll need to evaluate your insurance coverage to make sure it’s appropriate and sufficient.

When should you first start thinking about insurance? Do you even need to worry about it if you’re first starting out in your career, you’re single and you have no dependents?

Actually, you might have more to protect than you thought.

Do you own a house? Do you have a student loan? A car loan? A balance on your credit cards?

If you have any or all of these expenses, then you could face serious problems if something happened to your income. And the fact is that, at every stage of your working life, you are much more likely to become disabled than you are to die.

If a serious injury or lengthy illness prevents you from working, how will you make your house, car and other payments?

Disability insurance can help. If your employer offers disability coverage as a low-cost benefit, take it.

However, you may have to supplement this coverage with an individual policy.

Now, let’s fast-forward a few years in your life cycle. If you get married and have children, you should absolutely consider life insurance.

The amount of insurance you require should be based on several factors: your income, your spouse’s income, the size of your mortgage, how many children you have and anticipated college costs.

During your early working years, you may be able to get by with relatively inexpensive term insurance.

As you move into your middle years, though, you might want to explore some type of permanent life insurance.

Once you approach retirement age, you’ll also want to consider long-term care insurance.

A year’s stay in a nursing home can cost $50,000 — and in some major metropolitan areas, it can cost twice that much, according to the Health Insurance Association of America.

Medicare may only pay a fraction of these costs, so if you want to maintain your financial independence and avoid burdening your family, you might want to purchase a long-term care insurance policy.

Finally, during your retirement years, you could use life insurance as an estate-planning tool.

An attorney experienced in estate planning can advise you on the potential uses of life insurance in trusts or other arrangements.

As you can see, meeting your insurance needs is a dynamic process.

That’s why you may want to periodically review your insurance situation with an investment professional who has the tools and experience to recommend the right moves to make — at the right time in your life.

Scott Flake is a licensed financial adviser with Edward Jones. He hosts a weekly informal investment discussion at 10 a.m. on Tuesdays at 411 S. Beeline Highway, Suite B. For more information, call him at (928) 468-1470.

Eleven Reasons Why You Need More Life Insurance

Jane Baker
As you reach different stages in your life, the need for insurance will change. Here’s how to make sure you always have enough protection.

Do you have enough life insurance? The chances are, you probably don’t. After all there’s a major shortfall in the amount of cover we need and the amount we’ve
actually got. In fact, the gap between the two literally runs to trillions (£2.3 trillion to be precise!*).

Even if you think you’ve got enough life insurance now, you’ll probably need more later on. Remember if you don’t update your policy as key events happen in your life, you risk being seriously under-insured.

Here are eleven key times in your life when you need to thinking about buying life cover:

You buy your first home with a partner
I think many of you are pretty switched on to the need to buy life cover when you first take out a mortgage. If you’re buying a home with someone else you need enough protection in place to make sure he or she won’t be saddled with the entire mortgage debt if the worst happens to you.

You have other debts – and dependents
So you’ve got your mortgage covered, but what about other debts such as personal loans and credit card balances? Make sure you take out enough insurance to cover these too, because these debts may have to be paid out of your estate. You don’t want to leave your debts behind for your family to deal with.

You get married or enter into a civil partnership
Not only are you sharing each other lives, but you’re probably sharing your finances now too. You and your partner are bound to rely on some of each other’s salary to pay your living expenses. That means you'll each need enough life insurance to cover the cost of your contributions to the home.

You start a family
Bringing up a child can cost a small fortune and it can be a pretty big drain on both parents’ income. If one income is lost, you’ll need enough protection in place so the surviving partner can continue to support the family financially.

You become a stay-at-home parent
You might think there’s no need to buy life insurance for a parent who has given up work to bring up a child. But you would be wrong. When you set up a policy, think about covering the costs of childcare and running the home in the absence of the stay-at-home parent. These expenses can run far higher than you might expect, so having extra protection to cover them can be really valuable.

You have more children
Quite simply remember to keep stepping up the amount of protection you have as your family grows.

You move to a bigger house
Bigger homes normally mean bigger mortgages, so make a point of increasing your life cover when you move to a larger property.

Your salary increases
You’ve just had a big pay rise. Congratulations! This could be your ticket to a larger home in a more affluent area or private education for your children. In other words, if you’re starting to enjoy a more affluent lifestyle, think about upgrading your life insurance policy to help your family support it if you’re no longer around.

You change your job
If you’re lucky your employer may offer death in service benefits. This could provide a valuable cash lump sum of say, three or four times your salary. Although that sounds pretty generous, death in service may not be enough to cover all your protection needs on its own.

Don’t forget death in service benefits can’t be adapted to suit your changing circumstances.

And most importantly, you’ll lose the cover when you leave your job, unless it’s available in your new position.

You reach retirement
Once you stop working the time has come to start thinking about your inheritance tax (IHT) liability. If the value of your estate is likely to exceed £312,000 (based on current rates) your family will face an IHT bill. But you can buy a life insurance policy specifically to cover these costs. IHT planning can be very complex so make sure you seek some expert help from an adviser who specialises in this area.

You rely on someone else to support you
If someone else supports you financially or provides care for you, think about taking out a life policy to insure their life. Suppose one of your children looks after you when you become older. If the worst was to happen to them, where would this leave you?

You can, in theory, insure anyone else** – as long as there is an ‘insurable interest'. In other words, you must have a genuine reason for insuring their life, and there’s evidence their death would have a negative impact on you financially.

But don’t be over-insured
Although life changes can bring greater protection needs, they won’t necessarily all apply to you. Let’s say there’s no-one in your life who depends on you financially. In that case you probably won’t need life cover at all.

Use the table in this article to help you work out how much life cover you should have overall.

Remember you can easily cancel policies you don’t need later on. For example, once you’re completely debt-free and your children have flown the nest, your protection needs should reduce. So don’t pay for something you don’t really need.

* Swiss Re Term & Health Watch Report 2008

How to read an insurance policy: the known loss doctrine, part 2

I am making time to post again at the inspiration of Michael Aylward, a partner at Morrison Mahoney specializing in insurance coverage issues. I met Michael years ago when we represented codefendants in a rather silly copyright violation case. Since then I have relied on his excellent articles on allocation issues; been riveted (no, I'm not kidding) by his talks at seminars on insurance coverage; and imposed upon him for advice both legal and practical which he has always graciously given.


In my last post I discussed the known loss doctrine. One question that frequently comes up with respect to that doctrine is whether there is coverage when the insured knew of the facts that created tort liability before the policy period, but did not subjectively know that such facts could actually lead to liability.


The United States Court of Appeals for the First Circuit explored this issue under Massachusetts law in United States Liab. Ins. Co. v. Selman, 70 F.3d 684 (1995). In that case the insured was a landlord who was informed prior to the policy period that his apartment had lead paint in it and his tenant's child had lead paint poisoning. The court held that the lead paint injury was not a known loss because discovery had shown that the insured had not made a subjective connection between the lead paint in his building and the underlying plaintiff's future medical risks.

In my next post I'll discuss how the known loss doctrine should affect an insured's decision about reporting to its insurer a potential claim.

Certificates of Insurance - Worthless Paper?

A certificate of insurance is, perhaps, the most misunderstood document in the insurance world – even more misunderstood than the insurance policy the certificates are designed to represent!

The certificate of insurance…
…does not prove amounts of coverage available
…does not indicate the coverage in the policy
…does not prove policy conditions
…does not ensure additional insured status
…does not ensure notice of cancellation

A certificate of insurance is proof that an insurance policy was in existence on the day the certificate was issued. While the certificate will indicate that certain coverages are contained in the policies, coverage is solely determined by the insurance policy language – not certificate language.

The preamble to the certificate states:

“This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend, or alter the coverage afforded by the policies below.”

In other words, it does not matter what is on this certificate. The coverage in the policy is the coverage in the policy. If the certificate indicates that there is an additional insured but the policy has not been amended, there is no additional insured.

The header for the coverage description section has a further disclaimer:

“The policies of insurance listed below have been issued to the insured named above for the policy period indicated. Notwithstanding any requirement, term of condition of any contract or other document with respect to which this certificate may be issued or may pertain. The insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such.”

In fact, the above header language means that it doesn’t matter what other documents exist (leases, purchase and sales agreements, contracts) the insurance in the policy is what is in force.

On the back of the certificate form used by 99% of insurance agents is the following:

"IMPORTANT If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

"If SUBROGATION IS WAVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s)."

So, saying that a company is an additional insured on the certificate does not make it so. Further, statements about subrogation of claims are also not binding.

The last part of the back page shows the following:

"DISCLAIMER The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon."

The disclaimer attempts to remove all responsibilities of the issuing insurance agent. The language appears to try to eliminate any perception of authority.

Is the Certificate of insurance really worthless? No. It does show that a policy is in place. Certainly, agents try to be accurate in the descriptions of coverage indicated on certificates. However, you cannot use a certificate to prove coverage if the policy does not support the coverage described.

All that said, I still suggest my clients obtain certificates. In some cases it will save you premium at the time of a payroll audit as insurers accept certificates as proof of subcontractor coverage.

I have prepared a single page document that you can use to inform your vendors and contractors of your certificate requirement. Have your attorney review the document before you use it.

The form can be downloaded here as a .doc file for easy editing.

Whole life insurance: Best protector of life

To provide financial security to the family members, many people in India are taking insurance policies which are very beneficial. At first, these policies were offered only by the LIC (Life Insurance Corporation of India). Later, numerous private companies entered in this field to provide services to the Indians with various types of policies.

From then, the insurance field has been developing rapidly. In India, there are different types of insurance policies are available like vehicle, death, accident, life, health, house and business etc. Among these policies, Whole life insurance is the one which helps the family members to balance the financial situations after the death of policy holder. We can also say it as a permanent coverage for whole life of a particular person, who takes this policy.
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This is a contract between the insurance company and the policy owner regarding the benefits and particular amount of money offers by the company after the death of policy holder. The owner can take policy in his own name or on the life of a person but he needs to have some financial interest in the life to be insured. This means that owner and insured can be same entities as well as different entities. Up on the insured's death or up to completion of the contract time, the owner has to pay money in the form of instalment basis which is known as insurance premiums. Most of the companies are offering 3, 6, 9 and 12 moths premium policies. The owner can select the best one depending on his financial position. Some of the insurance companies are offering interest rates on the premium amounts to the whole life insurance policy holders.


The owner, who has taken the whole life insurance policy can enjoy with many of its benefits. To solve temporary financial needs, the policy holder (read owner) can apply for a loan from any bank and money lenders in India as long as the policy is active. He can cash by surrendering the policy. One of the main advantages of this policy is it helps the users to get exemptions in their tax payments. The family members can get insured amount in an easy way after the death of insurer just by claiming to the insurance company. The insurance plan for whole life acts like an investment as the policy holders can get the insured amount with other benefits after completing the policy time.

If you decide to take a whole life insurance policy, you should take right steps before going to take a policy. Some of the insurance agents will try to mislead you by giving wrong information. So, it is highly advisable to you not to trust anyone. The first thing to do is comparing life insurance plans that are offered by the different insurance companies.

There are many ways to compare life insurance plans of all the companies. One is you can take the advice of your friends, family members, colleagues and relatives. The second one is to get information from books and newspapers. One more way is Just to visit all the India insurance companies websites over the Internet to find out the best one which is beneficial for you. This is the right place to compare life insurance plans of India.

Without going for different types of policies, you go for one policy which is really helpful to your family members after any accidental happening. Before taking the whole life plan, you should clear all your debts to pay the premiums in right time. Select the best insurance company which offers more benefits and interest rates on taking policies. To make a clear way to get insurance amount for a particular person after your death, mention his/her name clearly on the contract. You should have a clear idea of your policy time and premiums.

Just by taking some precautions, you can take whole life insurance policy with more benefits from a good company.

Life Insurance Myths and Facts

by MyFOXColorado.com
DENVER - You can probably save money if you make sure that you are well-informed about your life insurance policies.

You'll find some common myths about life insurance below, courtesy of Allstate insurance. Insurance expert Steve Cocker appeared on Good Day Colorado with anchor Shaul Turner.

· Myth: I am single. Most single people don’t have a pressing need for life insurance because no one depends on them financially. However, there are exceptions -- for instance, if you’re providing financial support for aging parents or siblings.

· Myth: I don’t work. Stay-at-home parents often make significant financial contributions to a family’s budget by providing such things as childcare, transportation and housekeeping services that could add up to $40,000 a year according to The Life and Health Insurance Foundation for Education (LIFE). Could a single surviving spouse afford to pay for these services on his or her own?

· Myth: Group life provides all the coverage I need. Group life insurance is a great component of a life insurance program. However, the coverage offered is not always enough to take care of your beneficiaries and usually offers limited coverage options. Group policies are generally non-transferable once you leave your current job.

· Myth: A permanent policy is better than a term policy. The kind of coverage that’s right for you depends on your unique circumstances and financial goals. A term policy generally offers the greatest coverage for the lowest initial premium and is a great solution for people with temporary needs. A permanent policy may work best if you anticipate a need for long-term protection.

· Myth: I have a term policy but can’t convert to a permanent policy. Not all term policies are the same. Some may have certain provisions as standard features, including convertibility. This feature allows you to convert your term policy to a permanent policy without submitting evidence of insurability. The amount of time that you have to convert varies. The key is to check on your provisions and make the move to permanent coverage when you can if that’s what you need.

Are you too risky for insurance?

Have you ever applied for a life insurance policy and had your proposal turned down by the insurance company?

Incredible as it may sound to some, particularly given the aggressive sales pitch adopted by many players in recent times, insurance companies do reject applications they think are too risky.

And how do insurers decide who gets a cover and who doesn’t? Well, based on a process called risk-classification or underwriting.

An insurance company’s performance is judged among other things by its claim ratio — the lower the ratio, the better is the performance. To achieve this, the companies follow a stringent underwriting process.

The insurer’s underwriters identify and calculate the risk of loss from policyholders, establish appropriate premium rates, and write policies that cover this risk.

Each insurance company uses its own set of underwriting guidelines for determining whether or not the company should accept a proposal.

In life insurance, this decision process sometimes requires medical evidence of the applicants. The applicant may be required to provide the following information (for life insurance) to enable underwriters assess mortality risks and determine appropriate premiums:

Age
Gender
Height and weight
Health history (often family health history)
The purpose of the insurance (estate planning, business or family protection, etc)
Marital status and number of dependants such as children
The amount of insurance the applicant already has, and any additional cover he proposes to buy
Occupation (some are hazardous, and increase the risk)
Income (to determine suitability)
Smoking or tobacco use (smokers typically have shorter lives)
Alcohol (excessive drinking reduces life expectancy, too)

Each insurer sets its own underwriting standards of what is acceptable, insurable risk. Then each application for insurance is reviewed to determine if the individual meets those standards.

There are four common categories:

Preferred: If you are a better-than-average risk (i.e. in good health, with no dangerous occupation or health history) you may be charged the preferred or lowest rate.

Standard: If you are considered an average or typical risk, you will be charged the standard rate.

Rated: If you pose an above-average risk (say you have high blood pressure, smoke, or engage in skydiving every weekend), you may be classified as an increased risk and charged a higher premium.

Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

Life insurance for a young military family

Question: I am the 22 year-old mother of a 6 month-old daughter. I am currently unemployed while I take classes to complete my college education and my Husband is deployed with the National Guard overseas. I am concerned about my family's financial future if anything should happen to either myself or my husband. I would like more information about various life insurance options. What kinds are there? What is the difference between the types? How do I pick what one is right for my family? Are there any books or online resources with accurate and easy to understand information? Thank you for your time and help. Sincerely, Jodi, JonesboroAR

Answer: This is a fittiing question for Veterans Day. First of all, since your husband is on active duty with the military you should be automatically covered for $400,000 in life insurance benefits through Servicemembers' & Veterans' Group Life Insurance. Here's what the handbook says: "Members on active duty, active duty for training or inactive duty for training and members of the Ready Reserve or National Guard are automatically covered for $400,000, the maximum amount of coverage."

He can also purchase up to $100,000 of SGLI coverage for you, in increments of $10,000.

The policy offered by the government is a "term" life insurance policy. Term life insurance is a pure death benefit. It doesn't pay dividends and there isn't any cash savings attached to the policy.

The section of the U.S. Department of Veteran's Affairs website that describes the life insurance benefit offers good information, including details on the policy, a calculator for figuring out how much life insurance you should carry, a life insurance glossary, and a description of the basic types of life insurance.

The differences between life policies matter a lot if you and your husband decide your family needs more life insurance--especially adding more coverage for you in case something happened to you.

Life insurance comes in two basic flavors. The first I've already mentioned, term insurance. Term insurance is a simple product, easy to understand, and it allows for competitive comparison-shopping for the best mix of price and coverage. You'll want a low cost, plain vanilla policy from a blue chip, financially strong life insurance company. Term insurance is ideal for most families with insurance needs, like you.

Cash value is the other major kind of insurance. Cash value insurance always comes with a tax sheltered savings component as well as a life insurance policy. Cash value life insurance can be complicated. There are all kinds of policies, from whole-life, universal-life, variable-life, variable-universal life, and so forth. Depending on the type of cash value policy, the insurance company may invest the savings for you or you may choose from a menu of investment options. The premium may be stable for the life of the policy or you may vary your payments. In general these policies are expensive.
11/11/08 by Chris Farrell

Younger generation should be more aware of the benefits of insurance

The younger generation has been advised to take out insurance policies as more people cut back on life insurance as a bid to save money during the financial economic crisis, it has been revealed.

According to a study conducted by Fairinvestment.co.uk, 24 per cent of those who participated admitted to not having life insurance, medical insurance, home insurance, payment protection insurance or do not take out travel insurance when going on holiday.

Spokesperson Rachael Stiles, of the website found the situation quite “concerning.”

She said: "As budgets get tighter, I can understand why Brits are cutting back, but insurance should be one area that is sustained.”

The study found that the older generation tend to take out life insurance policies more than the younger generation. Only 10 per cent of those aged 19-21 invested in a life insurance policy while 53 per cent of 51-55 year olds had taken out life insurance policy.

“When it comes to life insurance, young people should be more aware as you never know what is around the corner. And, if you are the main bread-winner and have a mortgage or rent to pay and something happened to you, your partner or loved ones would be left to foot the bill, whereas a life insurance policy could cover such expenses.

A 25 year old male can get a policy for as little as £6 a month, making it an affordable expense," she added.

Preventing Employee Theft

There are four parts to employee theft prevention:

-Hire only honest people
-Create an environment that doesn't tolerate dishonesty
-Build systems that enable detection
-Buy employee dishonesty insurance

The first seems silly. However, most embezzlers have some history of dishonesty. Criminal background checks, drug testing, and resume/reference confirmations all help weed out bad apples. Repeated interviews as well as spending leisure time with key applicants also helps.

Your company culture should be one of absolute honesty. Lies and fibs cannot be tolerated. Stealing in any form should lead to dismissal. Falsifying expense accounts is theft and should be punished. Of course, the leaders of the company must lead by example. As soon as the boss is seen copying fliers promoting his kid's lawn care business, all credibility is out the door.

Checks and balances in inventory and cash handling procedures is a key prevention technique. Having systems where those who write checks don't balance the bank accounts is a perfect example. Spot checks of cashier drawers. Marking incoming checks "for deposit only" in the mail room or as soon as the check is presented. Video surveillance is a proven deterrent.

If all else fails, you must have insurance coverage to protect the organization from a devastating financial hit. Talk with your insurance agent about coverage. Pick an amount of insurance that you feel comfortable with and double it. The insurance is usually not that expensive.

Don't forget charity this year, and life insurance can help

TIM CESTNICK

Tim Cestnick is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians. tcestnick@waterstreet.ca

Ah yes, a recession must be around the corner. My friend Rob is a leading indicator. That's right. You see, Rob is notoriously frugal. I visited Rob last week, and we sat in a cold, dark living room chatting.

"Recession is coming," Rob said. "We've got to cut back now. My electrical bill for October will be one-third what it was in September," he said proudly.

"Rob, pass me those infrared goggles so I can see you," I replied.

Some people are cutting back their spending, and many charities today are concerned whether donors will be as generous this fall as they have been in the recent past. The fact is, those needs that are met by these charities don't just disappear in tough economic times. So, let's all make an effort to be generous this fall.

THE IDEAS

How can you be more generous when you may not have the cash to give? There are a few ideas. Today, let's talk about donating life insurance.

Donate life insurance today. Like many Canadians, maybe you've got an old life insurance policy that you don't need any longer. Consider assigning (that is, transferring) the policy to a Canadian registered charity. There are a couple of tax implications to this.

First, you'll be deemed to have disposed of the policy at its "value," which under Canadian tax law means the cash surrender value of the policy. So, there could be a gain on the transfer of the policy to the charity. By the way, this gain is taxed as regular income, not as a capital gain.

But don't fret. You'll also be entitled to a donation tax credit for the "fair market value" of the policy. This donation tax credit should fully eliminate the tax that might otherwise result from that gain I just spoke about. You'll also be entitled to a tax credit for any premiums you continue to pay on the policy after assigning it to the charity.

As an aside, there's a mismatch between two provisions in our tax law that could work to your advantage here.

First, any gain from the transfer of the policy to a charity is calculated using the cash surrender value of the policy as the definition of the "value" of the policy.

Second, your donation receipt will be calculated based on the "fair market value" of the policy, which the Canada Revenue Agency has said may be different than the cash surrender value (by the way, this is a relatively new position taken by CRA). In fact, that fair market value could be much higher than the cash surrender value in some cases since it will be based on a number of factors, including the health of the insured person.

So, if your policy has no cash surrender value, there won't be a taxable gain on the transfer of the policy to a registered charity, but there may still be a value for purposes of calculating the donation tax credit, so you could win from a tax perspective. Follow me?

Donate life insurance upon death. Another way to donate life insurance is to keep ownership of your policy and simply name your favourite Canadian registered charity as the beneficiary of the policy. You'll be entitled to a donation tax credit in the year of your death for the death benefit that is paid out to the charity. This could result in a much higher tax credit than what you might get by donating the policy today. The only catch is that you won't get the tax credit until the year of death, and you won't be entitled to a tax credit for the premiums you pay on the policy between now and your date of death. Prior to the year 2000, you wouldn't have received a tax credit for the death benefit left to the charity as the beneficiary of a policy, but thank goodness common sense prevailed and that tax relief is now available.

THE CHOICE

Which approach to donating life insurance is better? Well, that depends on whether you want a smaller amount of tax relief today, or greater tax relief on death. You'll want to make sure that you have sufficient income in the year of death, and the immediately prior year, to absorb the full donation tax credits you'll be able to claim if you opt for the second approach. If the insurance policy is big enough, and your income is low enough, you may not get the full tax relief in the year of death.

insurance a vital part of your financial plan

You have created a budget, reduced your expenses, eliminated your credit card debt and, have started saving for retirement, so you are all set, right? While you have certainly come a long way, there is one more important aspect of your finances that you need to consider.

You have worked very hard to build a solid financial footing for you and your family, so it needs to be protected. Accidents and disasters can and do happen and if you are not adequately insured it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head.

Insurance is often the most overlooked aspect in the personal financial planning process. There is an old saying in the industry that when all the other expenses are paid then whatever is left, if any, goes to insurance. The truth is that insurance should be the first one paid simply because if one is having financial problems now imagine what it would be like when disaster or tragedy strikes.

Unfortunately, insurance is still one of the least understood areas of personal financial planning. Therefore in the spirit of Financial Literacy Month and the theme: “manage your money” “live your dreams” we will make the case for insurance as a fundamental part of any strategic financial plan. First we will look very briefly at how insurance works and how it is employed to cover financial assets. We will also study how life insurance can be used to reach savings, investments and retirement goals. Finally, we will show that it is financially prudent to pay an affordable insurance premium today to insure against huge losses in the future.

Insurance premiums go into a pool

Insurance is an arrangement by which one party (the insurer) promises to pay another party (the insured) a sum of money if something happens which causes the insured to suffer a financial loss. While it may seem complex, insurance is really quite simple: the payments, called premiums, of the many pay for the losses of a few. Your premiums go into a large pool, if you will, at your insurance company. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims – even large single claims like when someone is permanently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster.

Insurance as asset protection

Most of us already recognize the value of insurance in asset protection. Mortgage banks and credit companies mandate that the prospective homeowner acquire life insurance to guarantee future income in the event of untimely death and property insurance to guard against perils such as hurricane, flood and fire. Building contractors must use Contractor’s All-risk policies to insure against physical damage to works, plant and equipment and materials during the course of construction. And of course there is compulsory motor insurance which protects against the financial losses and liability that result from traffic accidents. There are very few financial assets that are not backed by insurance of some sort. In this case, insurance is the foundation of wealth creation and wealth preservation.

Life insurance as savings and investment vehicles

We have seen how insurance protects our major assets and investments—be it the dream home, a college education, or a business enterprise. Term life insurance covers the life of the insured for a fixed period of time. If the insured within that period of time the sum assured is paid to the named beneficiary. Whole life insurance provides income protection, i.e. your earning potential, for your entire lifetime or up to a certain age in some instances. Unlike term insurance, part of the whole life premium goes into building up an accumulated cash value. This cash value can be borrowed or in some cases even withdrawn to help meet future long-term goals such as paying for a child’s college education, or retirement.

Popular life insurances like the whole life and endowment plans are a must have for any comprehensive personal financial plan. They are the right products to have when it’s important to have both protection and cash value accumulation. Additionally, some endowment plans pay 25% of the sum assured every five years and the total face value of the policy at the end of the endowment period. As cost effectiveness go, they offer guaranteed premiums, i.e. they never increase; guaranteed death benefit and guaranteed cash value.

Other life insurances such as universal life, variable life and variable universal life are termed as interest-sensitive insurance. The universal life is a more flexible, investment –linked plan that allows for a designated amount of the premium to be invested in bonds, mortgages and low-risk securities funds at guaranteed interest rates. Variable life allows the policyholder to allocate a portion of the premium to separate account comprised of various investments funds within the company’s portfolio. With variable universal life the policyholder can direct the investments themselves from a pool of options given in the policy. However, the risk is, where the investment perform well the cash value grows faster and if they under perform premiums may have to be increased to keep the policy in force. These policies, with greater element of risks, allow for the cash values to grow much faster thus accelerating savings, investments and retirement goals.

Insurance and retirement planning

The best way to plan for retirement is to start as early as possible. Without adequate long term planning, the retirement dream can become a nightmare. Financial risks, health issues, increased longevity, rising cost of living and uncertain retirement benefits obligations can cause living expenses to greatly exceed your retirement income.

Cash value life insurance is one of the ways to offset the risks of reduced income in your golden years. The guaranteed accumulated cash value in your whole life policy can now be used as supplementation for your Social Security benefit and your employer’s pension.

With practical financial planning the cash values in your life insurance can be customized to help fund your retirement in the following ways. The cash value can be paid out every month like a pension. A lump sum payment can be used to buy an immediate annuity for pension income or for emergencies, vacation, education, long-term and health care or any other unforeseen expenses during retirement.

Insurance and financial prudence

What is essential about protection insurance and most overlooked is its direct and indirect cost saving features. Remember, your affordable premiums go into a pool which pays out relatively large claims to the unfortunate few. This pooling feature brings the cost of protection within the means of most people, especially those who can not readily source funds to handle the huge financial losses resulting from accidents, poor health or natural disasters.

Since insurance covers unforeseen events many people do not view payments on insurance today as saving for a rainy day or as receiving any significant cost savings. In fact, they believe that it is more prudent to manage their own money through their own savings and investments. This is not ideal, as many people are seldom able to reach their own savings goals. Investments have their place but they are prone to the fluctuation of the markets and are not guaranteed. The insurance contract, on the other hand, provides cash guarantees for just when you need it.

Few people are able to pay out of pocket for major medical care. With an affordable medical insurance plan, the buyer can be assured of access to quality healthcare especially in the event of an emergency or major illness. In a time of astronomical medical and health care costs this can be the difference between financial ruin and the peace of mind that comes with knowing that you have access to quality healthcare.

Just in strict money terms, the actual average cost of retail air ambulance service to Miami, USA is US$15,000. That is what someone without coverage will have to pay before they can access this service. So if you are ever in need of an air ambulance service think of how much you will save in the future by paying a reasonably priced air ambulance premium today.

Term life insurance is the most affordable life insurance because the premium is designed to cover the cost of protection and therefore it has no cash value built in. However, term life is very useful for anyone who is cash-strapped like new some homeowners, or college students but absolutely must have life protection. Such persons are usually advised to upgrade their coverage to whole life as soon as their situation improves since term policies have no cash value and, particularly as the insured gets older, coverage becomes more and more expensive upon renewal.

With cash value insurance, owners have access to a ready cash reserve that they can either borrow or withdraw from to use as a down payment on real estate or take care of contingencies such as accidents, family crisis, and overseas travel. This is essentially a hassle-free loan at the time when you need it most. Additionally, in terms of cost-effectiveness, holders of multiple policies in the same company may qualify for discounts and bonuses which help to stretch their disposable incomes.

In the case of life insurance, the cost of protection increases as one gets older. Hence younger persons can buy larger amounts of insurance at lower rates. For whole life insurance these premiums are guaranteed, i.e. they do not change at all throughout the life of the policy. Hence early starters can lock in a relatively inexpensive premium with a substantial amount of insurance cover that can be used for later on for education, mortgage protection and retirement.

If you want to save for retirement, send a child to college or buy your dream house then insurance must be a central feature of your own personal financial plan. Cash value insurances are also savings and investments vehicles with guaranteed accumulated funds that grow to fit your day to day financial needs. Insurance protects our most cherished financial assets and brings peace of mind and a sense of well-being in the golden years.

A well-known fact in the industry is that insurance coverage is usually one of the first things that people will forego during financially tough times. There is plenty of evidence as to how quickly catastrophes like the loss of the breadwinner, a major illness or natural disasters can deplete financial resources where there is no insurance. With better public education about insurance, this kind of attitude is sure to change for the better with more and more people actively seeking out the essential insurance coverage. That is why the dedication of at least one month a year to financial literacy is so important.

Faking it - it's big business these days.

Whether a burnt body, a nicked car, a stolen iPod, a king's ransom in jeweller or designer sunglasses, all are being eyed by the crafty.

The life insurance industry has prevented some 21 000 fraudulent insurance claims over the past five years, according to the Cape Town-based Life Offices Association (LOA), an umbrella body for life assurance companies.

Had these claims not been identified and prevented, losses would have amounted to R1,3-billion, according to chief executive Gerhard Joubert.

The short-term insurance industry, on the other hand, received more than R22-billion in claims in 2006 and industry insiders fear a significant portion constituted fake claims.

So worried is the security industry about the rampant fraud that next week, it will launch the SA Insurance Crime Bureau (SAICB).

The bureau, it is hoped, will breathe new life into the fight against this type of crime once it starts operating on November 1.

Recently, KwaZulu-Natal has seen increasingly inventive insurance fraud scams aimed at defrauding insurance companies out of millions of rands.

These include:

* The sensational "resurrection" of a prominent Durban businessman who had allegedly led his relatives to believe he'd been burnt beyond recognition in his bakkie.

* A scam uncovered by police earlier this year in which the bodies of 21 "vulnerable" people, most of them hobos and prostitutes, were used to claim from life insurance.

Undetected

The SAICB believes the current approach to insurance fraud is fragmented and ineffective.

"Insurance fraud is a difficult thing," said Vivienne Pearson, image and reputation manager at the SA Insurance Association (SAIA), which has facilitated the formation of the SAICB.

"We know it is rife, but a lot of it remains undetected. If one imagines that 10 percent of those claims are fraudulent, we are talking about R2,2-billion that could have been used in a better way. We believe it's much higher than that, but we can't prove it," she said.

Many fraudulent claims were the work of organised criminals who enticed innocent people to get involved, with the prospect of making quick, easy money.

"They'll tell them where to leave the car so it can be 'stolen' or what to do to burn a house, hide its contents and claim from insurance," Pearson said.

High on the list of fraudulent short-term insurance claims, said Pearson, were those for expensive items such as cars, cellphones, big screen plasma television sets, jewellery and laptop computers.

One of the most common examples of insurance fraud involves an insured person staging a house burglary, hiding the goods, and then reporting them stolen, says Bradley Du Chenne, spokesperson for Dial Direct.

When a house robbery does, in fact, take place, the insured will often inflate the loss or claim for goods they did not own.

But claims for fake car thefts were just as rife, he said.

"Only once the car is safely out of the country, or its identity is sufficiently disguised, the insured submits a claim for a stolen car," said Du Chenne.

In such cases, the insured would benefit from a double whammy.

"(They) get a payout from the insurance company as well as the money they received for selling the car."

But it doesn't always work.

According to senior Durban prosecutor Blackie Swart, two local men were recently tried in court after making an insurance claim of R46 000.

This was for a BMW sedan that was reported stolen from the parking lot of a Durban casino when, in fact, CCTV footage subsequently revealed it was driven out of the casino by a person known to the owner.

Thief

The police traced the owner of the bakkie that had dropped off the "thief" at the casino. After questioning, the owner admitted that he had handed the car keys to the so-called thief, said Swart.

In the past, insurance companies had acceded to fraudsters using fake information to make multiple claims on one item.

"Money is tighter these days and people get up to all sorts of shenanigans. And insurance fraud is one of the easier ones," said Swart.

In an effort to curb this, most insurance companies now had their own investigators, Swart added.

Johan Burger, of the Institute for Security Studies, believes that a marked increase in commercial crime may be linked to the jump in insurance fraud.

The latest police statistics show that commercial crime rose from 53 941 reported incidents in 2004/5 to 65 286 in 2007/8.

"Commercial crime, under which insurance fraud falls, has increased sharply. But it goes unnoticed by many people. The focus is on armed robbery because it is something that touches on people's feelings," said Burger.

But some are confident that significant gains are being made in the fight against insurance fraud.

In the life assurance sector, the work of highly organised syndicates had prompted the industry to do more to detect and prevent fraud, said Johann van Rensburg, head of forensic risk at Metropolitan Holdings.

Meanwhile, the modus operandi employed by the gang involved in the mass insurance fraud killings first emerged in the media in July.

This followed an anonymous tip-off to police.

The syndicate, whose three members are awaiting trial in prison, would take life insurance policies at random. Once the victims were identified, they would then be killed.

They acted in collusion with Home Affairs officials who issued death certificates in these names.

Matching identity documents would be placed on the corpse, ostensibly solving the identity puzzle. And then the claims would be made.

Police spokesperson Superintendent Jay Naicker said this week that investigations into this case were continuing.

http://www.iol.co.za/index.php?set_id=1&click_id=15&art_id=vn20081026090447926C525813

The Right Insurance Rules

As lawmakers and regulators contemplate the staggering costs of the credit crisis, policymakers are seeking ways to ensure that Wall Street is never again in a position to gamble with America's fundamental financial stability. Among the issues being debated, reportedly, is whether the Treasury should expand its rescue program to include insurance companies. And looking beyond the immediate situation, debate is brewing over whether the federal government or the states can do a better job of regulating insurance companies.

Arguments over which jurisdiction should take the lead run the risk of obscuring the most important factor determining the efficacy of financial regulation. Today's crisis proves that strong capital requirements are critical for safeguarding consumers and the financial system, whatever level of government oversees insurers.

Even the most knowledgeable and assiduous regulators have limited capacity to halt irresponsible risk-taking and speculation. Booms, manias and bubbles, such as the one that led to the collapse of the subprime mortgage market, are as old as markets themselves. Cycles of excessive market exuberance and greed pose a grave risk to the general economic well-being when market players have a nearly unlimited capacity to leverage their risks -- that is, to take on financial obligations far greater than their capacity to make good on their promises if their bets go bad.

Capital requirements are like speed limits. The police, of course, cannot guarantee that every driver on the road is alert and acting cautiously. But if authorities post and enforce prudent speed limits, every driver and pedestrian is safer.

Effective regulation built around sound capital standards will limit leverage and risk. For example, the investment banks that are reconfiguring to become bank holding companies will become subject to capital standards that reduce the magnitude of the risk they are allowed to take. The capital standards they were subject to previously allowed them to leverage their balance sheets 30 to 1 and higher, meaning that for every dollar in their coffers, they could place bets of $30. In contrast, the rigorous capital requirements and standards to which insurance companies are subject have effectively limited the risks that insurers can take.

Insurance companies must set aside reserves using a formula that calculates future obligations based on conservative risk and interest-rate assumptions. A further layer of protection comes from the requirement to set aside additional "risk-based capital" for other contingencies. Insurance regulations also prescribe a prudent and diverse mix of investments whose expected cash flows reasonably match future obligations.

No regulatory regime can prevent all failures, particularly when the capital markets are dysfunctional. But these three layers of capital protection greatly limit the systemic risks and costs to taxpayers when something goes wrong.

A case in point for strong insurance capital standards is the collapse of AIG, the nation's largest insurer. The losses that necessitated a more than $100 billion, taxpayer-supported federal takeover occurred in the company's non-insurance subsidiaries, whose capital requirements were far less rigorous than those for its insurance subsidiaries. The insurance subsidiaries are solvent, and the controls in place limited the opportunities to use the capital inside these subsidiaries to pay off the bad bets accumulated elsewhere.

Just as changing police officers' uniforms would do nothing to make our roads safer if speed limits were not set appropriately and enforced, the rigorous enforcement of prudent capital requirements, not which layer of government is chosen to do the job, determines the quality of financial regulation. Rebuilding America's financial system will be challenging and costly. If a new regime were to ease the high capital standards enforced on insurance companies at the state level, we would be throwing the baby out with the bath water and creating a vast risk to the soundness of our financial system. Whatever shape the new U.S. financial and regulatory structure takes, we must build it on a foundation of solid capital requirements.

It's time to select your employment benefits

DES MOINES, Iowa — It’s decision time again for workers as many companies offer employees the annual opportunity to change insurance choices and make other benefit selections.

Open enrollment season can be stressful because it requires decisions to be made that can’t be changed for another year unless you have a major life change like a marriage, divorce or a child.

For many, it’s simply easier to leave things the way they are.

Benefits consultant Hewitt Associates says its research shows more than 60 percent of workers will simply default to the choice they made the previous year. That might be unwise. If you don’t choose, your employer may do it for you in a way that saves it the most money but might not be best for you.

Many companies are beginning the practice of moving employees who don’t make choices into default health care plans, which likely carry high deductibles, said Sara Taylor, head of open enrollment at Hewitt. In a few cases, companies have dropped coverage for workers who never look at their plan.

“The thinking is, this is an important and costly benefit and if you aren’t going to pay attention to it and at least look at it, you obviously don’t need it that much,” she said.

Workers should put as much thought into benefits choices as they would into buying a big-screen TV, a car or any other big-ticket item.

“They need to do their research, comparison shop and then select the options that will not only enable them to maximize their benefits dollars, but also best meet their needs and the needs of their families,” she said.

Hewitt says employees’ total health care costs — including employee contribution and out-of-pocket costs — are projected to be $3,826 in 2009, up 8.9 percent from $3,513 in 2008. The increase is more than double the rate of inflation and expected salary increases, which average about 3.7 percent.

When you’re starting to evaluate your coverage, you may want to look at your life insurance coverage, whether to increase it and who you’ve listed as beneficiaries. Also take a look at dental, vision and disability insurance coverage.

If nothing else, you should at least look at your health care coverage and consider starting a health savings account or a flexible spending account. Such plans can save you money on your taxes and can help control rising health care costs, Taylor said.

The accounts are set up with money taken out of your pay before taxes, which means you’ll face a lower tax bill. The money in the account may be used for a range of health expenses such as outpatient consultations, diagnostic tests and co-payments. In some cases expenses not covered by the primary health care plan such as chiropractic care or dental care may be paid for out of the accounts.

What’s more, you should start saving for retirement in a 401(k) account if you don’t already and assess your contribution level if you do.

Here are seven tips to help you face the decisions that come with open enrollment:

1. Do your homework and seriously evaluate all benefit options and weigh them against your specific needs. Carefully look over your benefits selections from last year and assess what worked and what didn’t. Did you put enough money in your flexible spending account, or did you tap that pool of cash well before the year’s end? Were the doctors you saw covered under your plan? How much did you spend in copays and other out-of-pocket costs? Most employers provide access to past medical and dental claims that can help you estimate what your future costs might look like.
2. Think about any life changes that may affect the benefits you select this year. Are any of your dependents no longer eligible for coverage?
3. Use the tools available to you. Many employers offer health care cost estimators that allow employees, to comparison shop for health insurance by evaluating two or more health care plans at a time. Users can compare monthly premiums, co-payments, deductibles and coinsurance payments. However, just 9 percent of employees used those tools in 2007, according to Hewitt.
4. Read the fine print. More employers are changing the rules of the annual enrollment process, and it’s up to you to make sure you fully understand if and how those rules may affect you.
5. Assess your family’s needs. More companies are requiring employees to pay a bigger portion of the cost of coverage for their dependents, either by increasing payroll contributions for dependent medical coverage or by charging higher contributions for spouses or partners. You should assess whether your spouse or partner can get coverage under an employer plan. It may be more cost-effective for each of you to take coverage under your own employer health plan if that option is available.
6. Consider participation in health and wellness programs like smoking cessation, weight management or physical fitness. It could improve your health and cut back on the amount you spend by potentially hundreds of dollars a year.
7. Take advantage of tax-free benefits like flexible spending accounts and dependent care spending accounts.