Quote on Insurance: February 2008

Preventing Discrimination Lawsuits

My friend Rick Dacri has posted an interesting article on preventing discrimination and harassment claims.

His main points:

1. Invest heavily in management training.

2. Review all your human resource practices.

3. Have a broad anti-discrimination and anti-harassment policy.

4. Follow your state law guidelines.

Read his full article for the details.

The insurance solution is employment practices liability insurance. Following Rick's advice is step one. Insuring your company for the legal fees, defense costs, and any award made against you is the second step. I have may clients who have faced discrimination lawsuits. Even when they win the case, they still spend $50,000 to $100,000 in legal bills.

The cost of employment practices liability insurance has come down in recent years. Many employers who saw quotes in the five figure range years ago are looking at premiums of $2,500 to 5,000 now.

Talk with your insurance advisor. Get a quote.

Pollution Aint Covered By Your Insurance

Most liability insurance policies exclude all forms of pollution. If you look at your general liability policy you will find four pages of information on pollution. The cut-to-the-chase fact is, they don't cover pollution.

Your commercial auto policy will only cover pollution from the gas tank or engine of your vehicle. If you are transporting chemicals, gas, oil, paints, etc. and have a roll-over -- no coverage for what spills.

Pollution liability coverage covers pollution. If you transport, store, create, mix, touch, or think about hazardous materials - or materials that could be hazardous to the environment in large quantities - you need to consider pollution liability insurance.

Basic policies start at about $5,000 in premium and go up quickly. Most will be in the $10,000 and up premium range.

Talk with your insurance adviser.

Guaranteed insurability

The idea that you can always buy more insurance later if you need to is very appealing to people, making the guaranteed insurability rider sound enticing. With this rider, you buy only what you need now, and when your situation changes later on and you need or want additional protection, you just buy more. You don’t have to worry about requalifying; you just purchase a new amount at the prevailing standard rates for someone your age.

For the privilege of being able to buy more insurance later without having to requalify, you pay more now. And with most guaranteed insurability riders, you can exercise this option only until you’re 45 or 50 years old (or a defined period of years, depending on the terms of your policy), which means that the additional payments you make along the way are wasted if you don’t increase your coverage by then. Furthermore, this rider is only offered with cash-value policies, which already cost more.
If you decide to purchase that added protection, make sure that you know how long you have to exercise your option.

Cost of living adjustments

Another rider that many people feel strongly about is the cost of living rider. It works fairly simply: Each year, the amount of death benefit increases based on some neutral statistic, usually the Consumer Price Index (CPI) put out by the federal government. If you choose this rider, the face value of your insurance policy automatically increases by this percentage.

For example:
If you have a $100,000 policy and the CPI is 3 percent, the coverage goes up 3 percent, to $103,000. The next year, when the CPI is 2.5 percent, your coverage rises 2.5 percent, to $105,575.
Naturally, you don’t get this additional benefit for free. Instead, either your premiums rise to pay for the additional coverage or, if you have a cash-value policy and your premium is constant, the insurance company reduces the amount that goes into your cash value. One of the benefits of a cost of living rider is that your coverage goes up without your having to requalify for a higher amount. That means no new medical exams later in life when you may not qualify.
In that regard, this rider can be a pretty good deal: Your insurance
coverage goes up to reflect the new needs of your survivors without your having to worry that you won’t qualify for the higher amount.

On the other hand, the amount of increased coverage can be pretty small. In the last several years, for example, the inflation rate has been quite low. Adding 2 or 3 percent is not likely to make much difference to your survivors. Secondly, with most policies you get to choose each year whether to purchase the higher amount. But if you decline in any one year, you no longer have the option in later years and have to requalify if you want to buy the rider again. If this rider appeals to you, chances are your concern is really more about the total protection you have purchased than the small yearly increases. Speak with your family, your financial advisor, and your insurance agent about these concerns. And if some event occurs in your life that warrants increasing your coverage — the birth of a child or a new job that results in a dramatic increase in the cost of your lifestyle, for example —buy a larger policy.

Nondeath and living needs benefits

Another rider benefit that many policies (particularly newer ones) offer is a nondeath benefit, where the insured receives the insurance payout without dying.
One of these provisions covers accidental dismemberment, in which you lose an arm, a leg, or vision in one or both eyes due to an accident (not an illness or disease). Typically, you can receive a portion of the total face value, depending on whether you lose one limb or two, one eye or two, and so on. The insurance contract clearly spells out the amounts you receive in each instance.

You can also get a policy rider to cover you if you suffer a catastrophic illness such as a stroke or kidney disease, and a rider if you suffer from a terminally ill disease. This kind of coverage has become increasingly popular as more and more people face the issues of aging, AIDS, and high-tech medical care that extends lives.
With this rider, if you are terminally ill and have less than one year to live (your doctors must provide certified statements to that effect), your insurance company will allow you to, in effect, take an advance on the face value of your death benefit. Usually, you can withdraw a percentage of the total coverage — perhaps as much as half, although more likely one-quarter or one-third. Most companies charge a fee to take advantage of this benefit, the amount of which depends on how much coverage you have and the percentage you’re withdrawing. The amount you take out reduces your death benefit, so if you live longer than expected, your coverage is lower.

Don’t confuse this kind of coverage with disability insurance, which covers your expenses if you become partially or totally disabled and can’t work, or long-term care insurance, which pays for nursing home care or in-home nursing care. This coverage is an actual payment from your life insurance company because you’re terminally ill and you want to be able to use some of the death benefit before you die.

First Auto Insurance Policy - 110 Years Ago Today

I could not let this go by.

Today (apparently) marks the 110th anniversary of the sale of the first auto insurance policy.

According to the Insurance Journal, the first policy was sold by Travelers Insurance to a Dr. Truman Martin of Buffalo, N.Y. for $12.25. That's $316.25 in today's dollars.

The average auto policy in the US today is about $820 a year.

We now return you to our regular programing!

Space Junk Risk

The recent missile hit of space junk has some people thinking about the risk of being hit by falling debris. Yes, I did get calls!

I must say that I'm not all that worried. Here's an article on the issue.

In case you are worried... Most special perils property insurance policies would cover the damage caused by space junk putting a hole in your roof.

If that's all you have to worry about, you're doing pretty well!

Valuable Papers Insurance

Your business burns. As you walk through the rubble you come across the twisted metal that was once file cabinets filled with customer and business information.

Boy, are you going to be unhappy with the insurance coverage you have on those papers! Basic insurance pays for the blank paper. Effectively, your insurance company will pay you for 2 boxes of Staples copy paper for each file cabinet. Not much help!

The real cost of the loss of your paper records is in the recreation of the records. Time, clerical work, and the cost of investigating who can get you the info you lost is not covered unless you buy valuable papers insurance. Many package policies include $5,000 or $10,000 of coverage for documents. That won't go far!

In addition to buying more insurance, consider risk management tactics. Scan important documents into digital form (then make sure your computer data backup process is exceptional). For documents that can't be scanned, use fire-proof file cabinets.

Does Your General Liability Policy Include Mental Anguish?

Your general liability insurance covers bodily injury and property damage. Bodily injury is defined as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." (Yes you read that right, bodily injury is bodily injury!).

How about emotional injury or mental anguish? It's not there! Some insurers add a separate endorsement to the policy. Others leave the insured dangling. Some courts have ruled that emotional injury is bodily injury. I want it in the policy.

Emotional injury claims are a very real part of the legal landscape. Ask your agent if emotional injury is a part of your insurance coverage. The answer may upset you, emotionally.

Double indemnity

Double indemnity is also called accidental death. Essentially, this rider pays your survivors twice the amount of the policy if you die an accidental death, as opposed to death by disease or illness. Some policies offer a triple death benefit if the accident occurs while you’re a passenger on a common carrier, such as a commercial airline, train, or bus.

Accidental death riders sometimes raise questions about whether a death is a result of an accident or an illness or disease. Most policies specify that in order to be covered under this rider, the insured must die within 90 days of an accident, and the cause of death must be directly related to the accident — and that may be hard to prove.

Although accidental death/double indemnity riders are quite cheap, for most people they’re not really good deals. After all, you base how much you insure yourself for on your survivors’ needs, and an accidental death won’t increase the amount they need. (In fact, they probably need less than if you die from an illness, because illness often brings additional and prolonged costs.)

If this coverage appeals to you, you probably feel under insured. Instead, consider raising your amount of coverage.

Family rider protection

One of the options available with cash value policies —whole life, universal life, and most variable life — is the opportunity to purchase a term life insurance policy for others in your family under your cash-value policy. This benefit usually saves you a great deal of money.

Say, for example, that you’re 40 years old and you buy a universal life or whole life policy. You’re building some cash value and, at the same time, using your premium to buy your term life coverage and add to your cash value. As the cash value grows and earns interest, either more of your premium goes toward your cash value, or the additional amount it earns goes toward paying the higher premiums for your coverage.

You may also want to cover your spouse in the event of his or her untimely death because both of you bring in income to support the family. If you go out and buy a separate term life policy for your spouse, you’re probably going to pay much more than if you broaden your coverage to include the other person.

Generally, breadwinners use insurance to protect their family, so purchasing life insurance for your children is usually unnecessary.

What is Riders?

Riders is the term used in the insurance business for options that you can purchase as extras. Riders are some of the most important parts of the policy. When you purchase a life insurance policy, pay special attention to the riders being offered. Most riders cost you additional fees. But one, an automatic premium loan, is almost always offered to you at no charge if you have a cash-value policy (whole life or universal life) and you check off the box that requests it. With this rider, the company pays your premium from your cash value if you don’t pay, either because you forget or because the payment is never received.

For most insurance policyholders, taking this rider is a smart decision. Remember, insurance is protection. Don’t get caught without protection just because your check gets lost in the mail or you forget to send it in.

What's Not Covered - Commercial General Liability

General liability insurance policies cover businesses for bodily injury and property damage for which the insured is libel. As with all policies, there are exclusions. Here are the commonly excluded events:

-Pollution
-Mold
-Nuclear hazards
-Bacteria and fungi
-Auto accidents (covered by your auto policy)
-Owned watercraft
-Airplanes
-Non-owned watercraft over 26 feet
-Expected or intended injury
-Liquor Liability if you are in the business of selling or making booze, beer, or wine
-Injuries to workers or arising out of a relationship to employees (workers comp covers such)
-Transportation of mobile equipment
-Racing or preparing for racing of mobile equipment
-War and Terrorism
-Property damage to property you own, rent, or occupy, property loaned to you,
-Recall Expenses
-Damage to your product arising out of your product
-Damage to your work
-Damage to impaired property or property not physically damaged
-Employment practices events - discrimination, harassment, wrongful hiring, etc.

Obviously, this isn't a comprehensive listing or explanation of general liability coverage. Read your policy and ask your insurance adviser how your coverage works.

To Landlords - Tell Your Tenants to Buy Renters Insurance

The other day, I blogged about renters insurance from the tenant's perspective. Here is the landlord version.

Landlords, tell your tenants to buy renters insurance. Countrywide only about 25% of apartment renters buy renters insurance. Some don't want it. Many are not aware it exists.

Landlords, if you have a fire, you can bet your tenants will come to you to pay for the damage of their property. Without renters insurance your tenants will be in trouble - meaning, you are not going to have them as tenants for long. Further, if they caused the fire and they don't have insurance, you know that it's going to be your insurance that pays for the damage. That may mean that your insurance premiums will go up.

My suggestion is that in your lease, make sure that you state that you do not provide coverage for their property - in bold letters say, "Buy Renters Insurance." Once a year, send a note to all your tenants reminding them that it is their responsibility to buy renters insurance.

There, now my daughter will stop bugging me about spreading the word to landlords!

To Renters - Buy Renters Insurance

My daughter called me today and told me a story of a friend whose apartment was damaged in a fire caused by a neighbor in another apartment. Her friend didn't have insurance.

If you rent a house or apartment you should consider renters insurance to protect your stuff. Your landlord is not responsible for protecting your furniture, clothing, electronics and other property. In all likelihood, your lease specifically states that the landlord can't be held responsible.

It's your stuff. You need to protect it.

Renters insurance provides three coverages:

-Protection on your property against fire, theft, windstorm, etc.

-Coverage for "loss of use" - Insurance to pay for rental of another apartment while your place is being repaired.

-Personal Liability Insurance - Coverage if you are responsible for burning your apartment down or if you injure someone visiting you.

For $25,000 of property coverage, loss of use, and $100,000 of liability protection you can expect to pay less than $250 a year. Talk to the insurance agent who insures your car. You may find that you get a discount on your car insurance for having two policies with the same insurer.

Endowment Policies

Endowment insurance policies are unique because they’re both savings plans that build cash value and term life insurance policies that expire if you don’t die. People who want the proceeds of their insurance to go to some organization, such as a college or charity, may take out endowment policies.

If you’re interested in this kind of plan, talk it over with a trusted and knowledgeable agent. Few insurance agents know much about these plans because they’re very specific and people don’t use them very often. You may want to speak directly to the fundraising director of the organization you want to be the beneficiary.

Mortgage Insurance

Mortgage insurance is, essentially, another term insurance program designed specifically to pay the balance of your home mortgage. As you pay off your mortgage, the balance declines, and so does your mortgage insurance death benefit. If you want enough life insurance coverage to pay for your mortgage, speak with an agent about buying or increasing a life insurance policy.

Industrial Life Insurance

Industrial life, also called burial life, is a specialized kind of policy that isn’t too common. As its name implies, the policy pays a small amount to your beneficiaries for your burial expenses. The premiums are quite low because the policy’s face value — the cost of burial — is fairly low.

In essence, industrial life is another term life policy, but the death benefit is specifically tied to the cost of burial. For most people, industrial/burial life insurance is not a good buy. It’s usually more expensive than simple term insurance and doesn’t pay your beneficiaries for anything other than your burial. If, however, you feel that you would like enough coverage to pay for your burial, you should speak with an agent about buying or increasing a life insurance policy.

Contractors and Bonds

A bond is a financial guarantee usually in regard to the performance work.

Contractors doing work for municipalities or government agencies often must obtain a bond that guarantees that work will be completed as agreed. If there is a default, the bonding company responds with a payment.

Unlike insurance, a bond requires that repayment be made to the bonding company after a loss. So, if there is a bond claim the contractor will have to repay the bonding company for the loss.

If there is a chance you will need a bond in the next year or so you should begin now to establish a relationship with a bonding company. You will need to provide financial statements, a list of work in progress, and perhaps personal financial statements. You bond underwriter will act like a banker in reviewing your financial strength and experience.

Work with your insurance adviser early to lay groundwork for your future bonding needs.

What's Not Covered - Property Insurance

Every property insurance policy has exclusions. Review your policy and talk with your insurance adviser about what exclusions are in your policy.

Here are some common property insurance exclusions:

Earthquake/earth movement
Flood/water/mudslide/water backup
Damage by insects and animals
Damage by high pressure vessels (steam boilers)
Ordinance or Law
Governmental Action
Nuclear
Utility Service
War
Fungus/mold/bacteria/dry rot
Artificial electrical current
Delay, loss of use or loss of market
Wear and tear
Smoke, vapor or gas from agricultural or industrial operations
Rust, decay, corrosion
Smog
Settling
Nesting or infestation or birds, animals, insects
Mechanical breakdown
Continuous or repeated seepage
Dishonest acts by you
Voluntary parting/trick/false pretense

This isn't a comprehensive list. Some policies include coverage for the above or limited coverage for the above. Talk with your insurance adviser about the coverage you have in your insurance program.

Grouping the Life insurance Programs

Life insurance, like any other commodity, is cheaper when you buy a lot of it (which is why $100,000 policies aren’t double the price of $50,000 policies), and cheaper when a lot of people buy it. When tens, or hundreds, or thousands of people agree to purchase policies from one company, that company can offer rates considerably less than if you buy a policy on your own.

Typically, group life insurance is arranged through your employer or an organization to which you belong. One of the key things to remember about group life policies is that you don’t own the policy! Although you’re the one who is covered, the policy belongs to your employer or organization, not you. If you find a different job, retire, or quit, or you no longer are a member in the organization through which you purchased the insurance, you can no longer buy the coverage. Be aware that you may suffer tax consequences when your employer pays for your life insurance. The premium that your employer pays for your life insurance coverage is, in effect, income.

Therefore, you’re responsible for paying taxes on that income. However, under the current tax rules, employers are allowed to provide up to $50,000 in term life insurance for you without your facing any tax consequence. Any premium paid for a policy above that minimum is considered additional income for which you must pay taxes. So if your employer purchases a $250,000 term life insurance policy for you, for which the company pays $850 per year (and the company can buy a $50,000 policy for $300), you must count the additional $550 as income on your tax return.

The bottom line on variable life

For many people, variable life is an excellent product because it combines flexibility and bigger returns. But it also adds in considerably higher costs. The premiums are much higher than universal life, in part because the expense charges are much higher. Remember, your investments are paying not only for the cost of your term life insurance but also for the cost of the company’s investment managers. The purpose of life insurance is to protect your survivors.

Although you want to choose the right kind of policy for your needs, you’re not insuring yourself to make a killing on the market. So make sure that any policy you buy, especially a variable life policy, has a guaranteed death benefit. If you’re looking for a good return on your money and want to invest, particularly in a tax-deferred vehicle, you’re probably better off doing so through an IRA or 401(k).

Other terms of variable life

Most of the other terms of variable life policies are the same as a universal life policy:

You can borrow against your cash value. In many policies, the amount you borrow is limited by the amount that’s invested in a money market fund, which often gets a lower rate of return than the stock or bond funds. This sort of defeats the purpose of buying this kind of policy to take advantage of the more dramatic rises in the stock market.
You can choose to have an increasing or fixed death benefit.
Your cash-value earnings are all tax-deferred, which adds value for many people.

Valentines Day Jewelry

That new jewelry you got (or gave) for Valentines may need to be specifically insured on your home insurance policy. Check with your insurance agent.

Many personal insurance policies limit coverage for theft of jewelry to $1,000 (not per item, in total) and don't cover loss of a stone or breakage of the setting.

Employee Theft

Yes, I've blogged on this topic many times. However, claims keep coming in and I keep finding employers without proper coverage.

Today's Portland (Maine) Press Herald has two stories about employee theft. In one an employee stole $400,000; in the other, $200,000.

Employers must take action to set in place systems that prevent employee theft. The best defense is a great offense. Make it clear to all employees by your actions that you will catch those who steal. Honest employees will not mind - in fact, your good employees are offended by dishonesty that is not punished. More than one employee has rationalized their thievery by saying that others are doing it, why shouldn't I get my share.

-Every bank account and credit card account should be reconciled each month by someone who is not authorized to sign checks or use the credit card. This basic check will prevent half of all cash theft by employees.

-All accounting department employees and bookkeepers must take their vacation. Some employers (specifically banks) require that key employees take two weeks at a time at least once a year. By some accounts 20% of embezzlements are caught while the offender is on vacation - they are not around to cover up the imbalances in accounts.

-Take regular inventories of supplies and materials.

-Inspect trash bins regularly. Employees frequently hide stolen merchandise in the trash to be retrieved after hours.

-Install video cameras to monitor cash registers and storage areas.

-Keep valuable merchandise away from exits.

-Have a system where employees can anonymously report violations of policies and procedures. A tip phone line connected to a third party can make employees more comfortable with reporting problems.

Cavalcade of Risk #45 ~ Is Love a Risk?

See the latest collection of risk blogs.

What's An Aggregate

A reader criticized my prior post for not explaining the term aggregate. Valid point.

Many liability insurance policies include aggregate limits of coverage. An aggregate limit is the most the policy will pay over the term of the policy (usually a year).

So, if you have a general liability insurance policy with an occurrence limit of $1 million an an aggregate limit of $2 million, you can have:

2 claims at $1,000,000 each
4 claims at $500,000 each
2 claims at $500,000 each and one at $1,000,000
You get the idea...

After the aggregate limit has been reached, you have used up your insurance. Replacement policies may be available or you may be able to convince your insurer to reinstate the aggregate for an additional premium.

In cases where the policy is for a term longer than a year, your policy may show that the aggregate applies per year or for the policy term.

Feel free to email questions or issues that you think should be answered on this blog.

Straight versus universal variable life

You can get two different kinds of variable life policies: a straight variable policy, in which your premium is fixed and the death benefit rises and falls as the investments go up and down, and a variable universal policy, in which the premiums vary, the death benefit is either fixed or increases (just like a normal universal life policy), and your cash value goes up and down with your investments.

With the straight variable, if the value of your investment exceeds a specified minimum (usually 4 percent), the death benefit goes up by that amount. If your investment’s value decreases, so does your death benefit. And with most policies, your death benefit will never decrease below the original face value.
If you’re considering purchasing a straight variable life insurance policy, make certain it has a guaranteed death benefit.

Variable life death benefits

The amount of your death benefit with a variable life policy varies but is typically never below the face value. If your investments go up, so does your death benefit. If it decreases — well, so does your death benefit. In fact, that’s one of the biggest dangers of this kind of policy.

If your investments go down, so, too, does your death benefit! And remember, you’re buying life insurance not as an investment but to protect your survivors if you die. Consequently, some insurance professionals are wary of this type of insurance. However, a variable life policy with a minimum guaranteed death benefit is a whole different story, at least as far as protection goes. With a guaranteed death benefit, variable life can be excellent insurance policies because if the investments are successful, the cash value can go up much more than a policy with a fixed rate of return.

What is variable life insurance?

A variation on whole and universal life is a variable life insurance policy.Under the terms of this form of insurance, you maintain a cash value from which your term insurance premiums are paid. What makes this type of policy different is that the cash value is invested in mutual funds. The amount of your death benefit is tied to the mutual fund’s performance.

Typically, you have the choice of investing your cash value in a common stock mutual fund, a bond fund, a money market fund, or any combination of funds. You maintain the control. With some variable life insurance policies, you can change funds, but you’re always investing in the insurance company’s funds. The success of these funds depends on how successful the insurance company’s investment managers are.

What is variable life insurance?

Debris Removal Insurance After a Fire

After a fire or other insured damage to your building, there will likely be debris that needs to be removed. Coverage for this is usually limited to 25 percent of the loss. The amounts paid for debris removal do not increase the total limit of coverage for the whole claim. It is therefore possible that you can run out of coverage.

To help, insurers provide an additional amount of coverage (usually $10,000) to pay for the cleanup. Some insurance companies increase the additional amount to $25,000 or $50,000.

Review your buildings. Will special disposal of rubble and debris increase the cost of reconstruction? Asbestos or other hazardous substances (found in older buildings) may point to the need for additional insurance.

Insurance Claim Reporting Requirements

Each insurance policy contains specific provisions for the reporting of claims.

All require timely notice to the insurer. All liability policies require that the insured not admit fault in any way. Most require written notice.

Work with your insurance adviser to set up a claim reporting system. Communicate that process to your line supervisors.

Quick claim reporting can prevent an incident from growing out of control - especially in areas of public liability like auto accidents, slip-and-falls, and product liability injuries.

Per Location Aggregates on Liability Insurance Policies

Commercial general liability insurance policies include various limits of liability.

The most prominent limit is the "occurrence limit." This is the amount that's available for each individual occurrence during the policy.

Liability insurance policies also include a limit for the aggregate of all of your claims. Typically, the aggregate limit is two or three times the occurrence limit. Think of it as insurance on the shelf - you use it as you need it.

For risks with multiple locations an expansion of the available coverage can be achieved by the use of a per-location aggregate. This provision provides just what the name implies; a separate limit for the aggregate of all claims at a particular location - more insurance on your shelf available at each location.

For banks, apartment owners, retail stores, and any other operations with multiple locations this is a valuable policy enhancement.

A similar provision can be made a part of umbrella liability coverage.

Work Comp Insurance Employment Classifications

I received a call yesterday from a contractor in CA. It reminded me of the importance of getting the right classifications on your workers' compensation insurance policy.

There are about 900 difference class codes - from plumber to clerical, painter to sheet metal worker, retail to salesperson and everything in between. There is even a code for dude ranch hand.

Putting the wrong classification on an employee means you could be paying the wrong premium. Ask your agent to review your operations and classifications. Ask to see the SCOPES manual description of your codes. (SCOPES is the handbook of classifications. It lists each code with a detailed description.)

Prepaying your premium

With universal life insurance, you can buy in up-front by putting a significant sum into your account, which allows your cash value to increase more because your account is starting at a higher level. Prepaying also allows you to lower your premiums because the accumulated cash value is earning more, which means that more of your earnings can contribute to the cost of the insurance. On the other hand, prepaying also means that you must take a lump sum of cash from somewhere.

Is prepaying for you? Not likely, unless you really want insurance but can’t afford monthly payments. People have generally used prepaid insurance as an investment to build cash value without incurring any tax consequences. But with IRAs, Roth IRAs, and 401(k)s, chances are you won’t be interested in this option.

Choosing your premium

If you want a universal life policy and believe that you can afford the premium, you need to balance the following three considerations to determine your cash value:

Determine how much you can afford from your monthly
budget.
Decide how much protection you want to purchase.
Balance the amount of protection you want to purchase

with the amount of premium you can afford. You invest in a life insurance policy to be covered in case you die, not because life insurance is a good investment. You can generally make more money by putting your money into other investments.

About Premiums

The amounts of your death benefit, accumulated cash value, and premium are all interrelated with universal life. The more you pay per month in premiums, either the more protection you’re buying or the more cash value you’re building. You can’t have both.

The higher the protection you buy, either the higher your premiums or the lower your cash value. And the more cash value you want to build, either the higher the premium or the less protection you’re buying. Because your primary goal in buying insurance is protection, your primary consideration should be the amount of the death benefit. Cash value and your premium cost should be secondary factors, but clearly, your premium should be in line with how much you can afford to pay.

Electrical Inspections

Every year thousands of properties are destroyed by electrical fires.

Overtaxed circuits, frayed cords, improper use of extension cords all can cause problems.

Hot plugs or cords are a sign of trouble not to be ignored. Buildings with wiring over ten years old should be inspected. Fuse boxes should be replaced with circuit breakers.

Extension cords should be for a temporary need and should never be placed under a carpet.

Electric meters should be regularly inspected for tampering or corrosion.

Disaster Planning - First Step - Communications Plan

I'm often asked about disaster planning.

The task seems daunting to many business owners. I suggest a step-by-step approach.

A good place to start is with a communications plan. You must be able to contact your employees, suppliers, and clients in the event of a disruption.

The process is pretty straightforward. Survey your employees getting all of their contact information - home phones, cell phones, beepers, pagers, home e-mail, work e-mails, etc. See a sample form here. Feel free to change the form to fit your needs.

Use the completed forms to build a telephone tree and email list. I suggest the lists be put on Google Docs or other on-line storage application. You can access the data when and where you need it.

Also build a list of supplier contact info. A sample form is here.

Both lists need to be updated quarterly.

Test your system by running an unannounced drill over a weekend. Have employees call through the phone tree. Send a blast email to everyone and ask for a reply.

Bloggers!! Do You Have The Right Liability Insurance?

Is blogging covered by your insurance? The short answer: probably not very well.

As an insurance consultant I get a constant stream of requests for policy interpretations. I don't sell insurance, so, people come to me for advice without worrying about my biases. I have no axe to grind. I have no commissions on the line.

The Exposures of Blogging

The act of blogging has limited but definite exposures to legal action: libel, slander, defamation of character, invasion of privacy, copyright infringement, advertising injury, harassment, and trademark infringement.

Personal Liability Insurance

Personal liability insurance is part of your homeowner's insurance policy. It pays for bodily injury and property damage caused by you and your family. Most standard homeowners insurance polices don't cover the perils of blogging. Some policies include libel, slander, and invasion of privacy. All personal policies have an exclusion for business activities. If you are blogging for business, don't expect your homeowners insurance to provide much coverage. The protection, at best, is light to nonexistent for the big causes of a lawsuit bloggers should worry about.

Talk to your insurance agent about solutions. You might be able to add coverage for libel and slander if you are not blogging as a business. A personal umbrella policy may solve part of your problem.

Commercial General Liability Insurance

For most small businesses commercial general liability coverage (CGL) is a part of the standard insurance package policy. It's the section of insurance where you have coverage for products liability and slip-and-fall accidents.

The CGL policy is designed to pay for bodily injury and property damage arising out of your business operation. There is also coverage for false arrest, malicious prosecution, wrongful eviction, slander, libel, violation of privacy, infringement of copyright, trade dress, or slogan in your advertising.

However, the policy excludes criminal acts and acts where you intentionally violate the rights of another. Copyright infringement that is not a part of advertising is also excluded. Further, most policies exclude coverage for insureds in the advertising, broadcasting, and web hosting business. Also excluded are Internet search companies, chat rooms, bulletin boards, and content providers.

The Solution

Talk with your insurance advisor. You must accurately describe your business activities and the way you make money. I suggest you provide a written description so that there are no misunderstandings. Even if blogging is an incidental part of your business activities, you should have this conversation.

Your agent can tell you what's covered and what's not covered in your current insurance program. Once you identify the holes, you can work to plug them. You may need a media liability policy or professional liability policy to fill the gaps.

Which option is for me?

If you die in 25 years, your survivors receive $18,000 more under Option 2. On the other hand, if you don’t die during that time and instead take your surrender value, you’re better with Option 1. In effect, by choosing Option 1, you’re gambling on a long life so that you can withdraw a larger cash value. To determine which option is best for you, you must consider a number of factors:

Your current age and health
How much protection your dependents will need as you age
Whether you can increase your net worth at a greater rate by investing in other options
How much of a gamble you’re willing to take

Death Benefits Options

With universal life insurance, you can choose how much death benefit is to be paid. You have two options, and although the options appear similar, some subtle differences between them can change the amount dramatically. With both options, your premium remains the same throughout the term of the policy, but the death benefit and surrender value differ.

Option 1: Fixed death benefit
When you choose a fixed death benefit, whatever amount you sign up for (in the example, $50,000) goes to your survivors. In actuality, the face value of the policy — the initial $50,000 —decreases by the amount you’ve accumulated in your cash value account. The death benefit remains the same because the decreased face value and the increased cash value add up to the total amount you chose.

Option 2: Increasing death benefit
With the second option, your death benefit increases in line with the increase in your cash value. Your survivors get the surrender value, which certainly appears to be a great deal more for the consumer than what Option 1 provides. So what’s the catch? Why would anyone choose Option 1?
With Option 2, your cash value increases more slowly than with Option 1. So you must continue paying the annual premiums, often when you no longer need the same kind of protection you did 25 years earlier.

Borrowing Against Your Cash Value

Universal life policies allow you to borrow against your cash value, usually at interest rates below what you can get elsewhere, even for loans secured against other assets. However, borrowing against your policy generally lowers the interest you receive on your cash value, making it equal to or less than the interest at which you borrow.
For example, say that you earn 4 percent on the first $500 of cash value and 7 percent on any amount in excess of that $500. You now have an accumulated cash value, or surrender value, of $7,874. You can borrow $3,000 against this policy at a 6 percent interest rate — well below what you can get at a bank (even for another type of secured loan) — so this deal is quite good if you need the cash. But the interest you earn on the cash value of the insurance policy is no longer the 7 percent of the amount over $500. In fact, the interest you earn takes into account the $3,000 you borrowed, and the total interest you earn on your account is

4 percent on the first $500
6 percent on the next $3,000 (the amount borrowed)
7 percent on the balance

Are You Attractive?

I was just interviewed by a reporter looking for information on safety equipment and its use in controlling workers compensation losses.

An issue came up that warrants a post.

To get the best rates on your insurance you must be attractive to insurance companies. Well run, safe companies with good loss records will get better quotes than average companies.

You want the insurance markets to want you.

When insurance company inspectors show up at your door put your best face forward. The insurance bid process is a place to show off how well run your company is. Exceptional management and an exceptional loss control / risk management program will always pay off in lower premiums.