What's Your Work Comp Loss Ratio?

According to the insurance industry magazine, National Underwriter, total work comp premiums in the US dropped from $47.2 billion to $26.4 billion from 2006 to 2007.

The annual loss ratio (losses divided by premiums) also increased from 57.8% to 59%.

What's your loss ratio? Divide your losses by your premiums over the last three years.

If you have a loss ratio under 50%, use that number when negotiating for lower premiums with your insurer at renewal.

Protecting yourself if you have a claims-based policy

In my last post I discussed the difference between claims-based and occurrence-based policies. I stated that if you have a claims based policy, your insurance provides coverage only if you receive and report to your insurer the claim during the policy period.


Claims can be brought years after you close out a project. The statute of limitations (the time period in which the law allows someone to bring a claim) for a negligence case in Massachusetts is three years. Other claims that might be covered by insurance have longer statutes of limitations. And there can be exceptions to statutes of limitations if, for example, the injured person was a minor or the injured person had no reason to learn of the injury at the time it occurred (for example, a misdiagnosis of an illness by a doctor).


Insurance companies deal with this by selling you "tail" insurance. Tail insurance covers claims that are brought against you in the future and is usually purchased by people who are closing down their businesses. You need to negotiate the terms of tail insurance, such as the period of time it will be in effect, based on your personal situation.

New-Hire Work Status

I just learned of a program that can help employers determine the legal status of new hires.

WWW.dhs.gov/e-verify

From the website:

"E-Verify is jointly administered by the Department of Homeland Security (DHS) through United States Citizenship and Immigration Services (USCIS) and the Social Security Administration (SSA). This program allows participating employers to verify whether newly hired employees are authorized to work in the United States by checking the information provided by the employees on their Form I-9 against both DHS and SSA databases. Participation in E-Verify is currently free to employers"

The difference between occurrence-based policies and claims-based policies

Liability insurance policies are either "occurrence-based" or "claims-based." An occurrence-based policy provides insurance coverage for a loss that "occurred" during the policy period, no matter when the claim is brought against the insured. A claims-based policy provides coverage for a claim that is brought within the policy period, no matter when the loss occurred.


Generally speaking, auto policies, homeowners policies, and commercial general liability policies are occurrence-based. Many professional liability policies are claims-based.


Let's say you had a policy that provides coverage for injury or damage caused by an apple tree you own. The policy was in effect from June 30, 2006 to June 30, 2007.


A plaintiff claims that as a result of your negligence, a branch of the apple tree broke and hit her on the head, injuring her.


If you had an occurrence-based policy, your insurance will cover you if the accident happened between June 30, 2006 and June 30, 2007. It doesn't matter if you were not notified of the accident until January, 2008; the insurance will still cover you.


If you had a claims-based policy, your insurance will cover you if you are notified, and notify your insurance company, of the accident between June 30, 2006 and June 30, 2007. If the accident happened between those dates but you don't receive notice of it until January, 2008, your policy will not cover you.


If future posts I will discuss the various issues that arise with respect to what "occurrence" means in an occurrence-policy, and the precautions you should take if you have a claims-based policy to make sure you do not have any gaps in coverage.

Ive taken a bit of a summer hiatus from blogging this month - the dog days of summer. Lots of good stuff to come...

Here's a link to some of the articles I've written on insurance topics.

I'm currently working on a white paper covering how to buy employment practices liability insurance and directors and officers insurance.

Stay tuned.

How to Save Money on Life Insurance Cover

When you want to purchase life insurance the best way to save money on your cover and still get everything you need is to shop around to find a provider that has what you want at a reasonable price.

Life insurance is an insurance policy that will pay out a specified amount of money to a beneficiary at the time of your death and will help your loved ones to pay for your funeral expenses as well as have some money left over for their own needs. You should consider the different types of life insurance to make sure you have the coverage you need. The various types are:

• Permanent Life Insurance. This type of life insurance has a cash value that is paid to your beneficiary at the time of your death and this cash value increases over the life of the policy. You can benefit from having this kind of cover while you are alive because you can draw off this value and invest it for your own needs.
• Term life insurance has the cheapest cover because it is for a specific length of time. Once that term runs out so does your life insurance, but you can renew the policy for a further term.
• Whole life insurance has a specified value in a guaranteed benefit and the premiums stay the same for the life of the policy.
• Universal life insurance has an investment associated with it. Part of the premiums you pay for the cover will go towards the insurance and part will go towards an investment through which you can earn money.

Once you decide what type of life insurance you want, there are ways you can save money in the amount of premiums you have to pay. Term life insurance has the lowest premiums because the pay out is not guaranteed.

You will not be able to purchase this type of policy if you have any serious health problems, such as heart disease or cancer because this increases the likelihood that you will die during the term. You will have to undergo an examination by a physician to prove that you are in good health. If you do not smoke, you will also receive a lower premium.

If you decide that you need a second life insurance policy, you can save money by getting a rider on your existing policy. This is an addition to your policy that will expand your coverage without affecting the cash value of the plan. The older you are the more you will have to pay for life insurance cover. The best advice is to take out a policy when you are young.

A person in their mid-twenties will pay a lot less for the same amount of coverage as well a person in their mid-fifties. When you buy life insurance when you are young, you have the option of locking in a level premium, which means the premium won’t increase as you age.

Important Articles About Life Insurance

Making a choice about the best life insurance policy entails weighing the advantages of each and pitching them against the disadvantages. Life insurance is made for the comfort of those you may leave behind. Picking out the best life insurance benefits both you and your family.

Beneficiaries of a life insurance policy varies from person to person. Some individuals take out life insurance and make charities as their beneficiaries. As a business partner, you can make your business a beneficiary of any life insurance policy you take out so that the business can remain in existence even without your presence.

Your main concern when availing life insurance is to find one that offers you the coverage that you want. Some individuals may take out life insurance with a coverage that includes weddings, mortgage payments and college expenses. The extent to which you want your life insurance to cover ultimately determines your premium payments.
Save up to 70% on term Life Insurance ��� Click Here

Life insurance policies have different premium rates. Term life insurance has cheaper premiums because of the length of time they are active. Whole life insurance is the most expensive in terms of premium because of the mouth watering benefits it comes with.

Life insurance can help you pay off taxes and debt. A good life insurance policy can make it sure that your kids go to the college they want to and receive their education without any financial hitches. The life insurance policy you choose can either make or mar you depending on how much you are able to pay in premiums.

With great success in spheres such as science and technology seems to come an accompanying increase in mortality that makes it impossible to dismiss life insurance. While life insurance isn't the way to cheat death, it is a way to ensure that in death, your caring hand is still felt by those you have left behind.

To get final expense life insurance, insurance companies need that you attain a particular age. In addition, you will have to pay a particular amount of cash each month so that at the time of your death, you will be covered.

Saving seems to be a habit that lots of Americans have an aversion to, thus the low patronage of life insurance. Life insurance can be considered a kind of saving venture that enables your beneficiary to have something to fall back on. Changing any negative mindset you have concerning life insurance can help your family a great deal if and when you are no longer there for them physically.

By: Bercle George

Thrifty Scot: How to save money on life insurance

Ways to cut the cost of life insurance have been offered byfinance website The Thrifty Scot.

The website lists a number of types of cover, noting that term life insurance is the cheapest as it lasts for a specific length of time.

However, it cannot be purchased by someone with serious health problems.

Permanent life cover can offer benefits while the holder is alive, as s/he can draw off it and invest it for personal needs.

The site explains that getting a rider on an existing policy can save money if you decide you need a second one.

Buying life insurance when young allows the option of locking in a level premium, which will not increase as you age.

Insurance provider Churchill recently apologised after a viewer of its television advert complained it was misleading, the Guardian reports.

While the advert said it was possible to make a claim without filling in forms, about 20 per cent of claimants do have to complete a declaration form or statement.

The Advertising Standards Agency said it was concerned that Churchill was not giving full information about adverts when they are submitted for clearance.

First steps for coverage attorneys

This is advice for attorneys working on their first insurance coverage cases.

If you represent the insurer, ask the insurer for a certified copy of the insurance policy or policies for every coverage year that may be triggered by the loss. Do this as soon as you receive the case. Certified copies are put together by the underwriting departments at the insurance companies, and it can take months for them to do it. I have had many experiences where the policy put together by the adjuster contains the wrong forms, is for the wrong policy years, or is just incomplete.

If you don't represent the insurer, or if other insurers are involved in your coverage dispute, immediately serve a request for production of documents requesting a certified copy of the policy or policies. You don't need to wait until you have an entire request for production of documents on all issues of the case; you can do your first request and then do a second, complete request when you are ready.

When you receive your certified copy, compare the forms listed on the schedule of forms and endorsements to the forms you have actually received. If there is a discrepancy, follow up immediately.

Make a copy of the policy you have received. Bates stamp your copy. When you refer to policy pages in motions (or memoranda to file), you can do it by Bates stamp numbers instead of making the judge flip through a dozen strangely-named forms trying to figure out which one you are referring to.

Drafting a demand letter to your insurer

In an earlier post I discussed how a 93A demand letter can help you if your insurer is acting in bad faith. This post discusses what you should say in a demand letter.

Your letter should be addressed to the adjuster you have been dealing with at the insurance company, and should be sent by first class mail and certified mail, return receipt requested. You should reference your claim number, which will be at the top of any correspondence sent to you by the insurer.

You should start the letter with, "This letter is a demand for settlement [or whatever you are asking for] of the above-referenced claim pursuant to Mass. Gen. Laws ch. 93A, the Massachusetts Consumer Protection Act, and Mass. Gen. Laws ch. 176D.

You should then state, "Pursuant to Mass. Gen. Laws ch. 93A, you are required to respond to this letter with a reasonable offer of settlement within 30 days. Failure to do so may result in your being liable for treble damages and my costs and attorney's fees."

You should then state what you are seeking insurance coverage for. Even if you have said this in previous correspondence, you should repeat it here. You should describe what happened; who is responsible (if applicable) and why; why the insurer has to pay the loss; and what your damages are. You should reference and include any supporting documentation.

You should discuss the history of correspondence or negotiations with the insurance company. This should include how and when you first notified the insurer of the claim, how the insurer responded, and all communications since then--at least to the extent that those communications support your claim that the insurer has not been properly responsive to your request for coverage.

You should state that the insurer's actions have violated Mass. Gen. Laws chs. 93A and 176D. You should specifically list any applicable subsections of Mass. Gen. Laws ch. 176D § 3(9). (If you click on the link, scroll down to (9).)

Finally, you should state the amount you are seeking in settlement (your "demand").

Global Warming and General Liability Insurance

Interesting article in Claims Magazine about the likely insurance company reaction to allegations that actions of an insured resulted in greenhouse gas emissions for which the insured is liable.

Readers Digest version... Claims for environmental damage are likely excluded under the pollution exclusion that is a part of most commercial general liability insurance policies.

More fuel for the idea that if you want coverage for pollution liability exposures you should be looking at a pollution liability insurance policy.

How to read an insurance policy: The insuring agreement

The "insuring agreement" is found on the first page of the "coverage form." (Note that this is generally not the first page of the insurance contract; that will be the declarations page. The other forms follow in more or less random order.)

The insuring agreement tells you in general terms what the insurance policy covers--but it doesn't actually provide much information. A typical first sentence of the insuring agreement of a commercial general liability policy is: "We will pay those sums the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." You still have to look elsewhere to figure out what "bodily injury" and "property damage" mean; I have been involved in cases where the meaning of "legally obligated to pay" has been an issue; "damages" can also be a term of the art. And of course, the phrase "to which this insurance applies" means that the policy covers what it covers and doesn't cover what it doesn't cover.

The insuring agreement also states that the policy doesn't cover exclusions, which are listed elsewhere in the policy; that it provides coverage up to the policy limits, which are listed elsewhere in the policy; and so on.

Although every word of an insurance policy can be and probably has been litigated, disputes over the insuring agreement generally focus on the meaning of the word "occurrence," which might or might not actually appear in the insuring agreement. I will discuss some of those disputes in future posts. (Additionally, not all policies are occurrence based. In a different future post I will explain the difference between occurrence based and claims based policies.)

Saving Money on Personal Insurance

Here's an article that includes some comments from an interview I did.

Info on home and personal auto insurance.

http://www.foxbusiness.com/story/personal-finance/reduce-insurance-costs-benefits/

Is life insurance worth it?

DEATH catches everyone eventually and the cost of life insurance for those aged in their 50s and 60s can also catch many people out.

With life cover for a 60-year-old often costing 10 times more than it does for a 30-year old, baby boomers can have some big financial decisions about whether to hold or ditch a life insurance policy.

Financial experts say it depends on individual circumstances but it is vital for people with school-age children or debts such as mortgages, personal loans and business loans.

Financial strategist Theo Marinis says people in their 50s and 60s might not need the same amount of cover as younger people.

"Most people, if given the preference, would rather have a sum of money available to deal with the unexpected than dip into savings or sell assets - perhaps even more so at older ages," he says.

While a 30-year-old seeking $500,000 of life insurance can expect to pay about $30-a-month for their cover, someone who is 50 and seeking the same level of cover will pay about $90-a-month, and a 60-year-old will be looking at more than $300. That is if they can get life insurance at all.

AMP financial planner Mark Borg says that between 25 and 30 per cent of over-55s do not qualify for life insurance because of pre-existing medical conditions. Others will have to pay a higher premium or have exclusions on their polices.

"Overall, we have about 50 per cent get through as standard life - the others have exclusions or loadings," Mr Borg says.

Mr Borg says covering any outstanding mortgage and income earners' expected wages are the key life insurance issues.

"There are some people who need the insurance, particularly those that are under-funded for their retirement," he says.

"It's not so much 'how much does it cost?' It's 'what would we do if that occurred'."

Mr Marinis says the baby boomers most likely to not need life cover are those who have no debt, no dependant children, and significant assets where at least some can be sold easily.

Case study

Keryn Johnson has experienced the benefits of life insurance. The personal assistant, 52, lost her husband Mark 14 years ago, when her children were aged seven and nine.

"It was a very difficult time which would have been even more difficult if he hadn't had life insurance so I could pay off our mortgage and debts," Mrs Johnson says.

"Can you imagine how hard it would have been to have had to move my kids out of their home and away from their friends into a smaller house because I couldn't manage the mortgage?"

Mrs Johnson still holds her own life insurance policy.

"I'll keep it going as long as financially viable. The cost will become prohibitive - and I'll be pleased to be alive to see that - but as long as I can afford it I'd like to leave my kids as much as I can," she says.

"Like I said, though, I'll only be too happy to live long enough for my children not to claim on my life insurance."

Insurance vital to financial planning

A financial plan is not complete without a well-thought-out insurance strategy. Here are the two most common types of insurance, along with points to consider when evaluating the best solution for one's needs. Successful investing involves a long-term commitment with regular installments in a well-diversified portfolio. But what if the investor is rendered disabled due to a serious accident, or worse? Insurance protects one's assets from unknown risks, helping to secure their financial future and the future of their families.

This is why a well-thought-out insurance strategy is vital to financial planning. A disability or untimely death can render a financial plan ineffective, and leave a family without finances to cover expenses and replace your income. Assessing one's insurance needs and selecting the most suitable options is a fundamental step in the financial planning process.

The first step is to analyze your present financial position (i.e. current income, debt load, expenses) and consider the impact of an immediate loss of income before insurance benefits begin. Will you or your family have enough for day-to-day expenses and cover any immediate additional costs? What does the picture look like after the insurance payout? Will you or your family be able to meet expenses and eliminate debt over the long term? Will you or your family be able to cope with ongoing costs for personal care and possibly travel to another province (or country) for treatment, if need be? Will you or your family have sufficient savings to produce the income required in retirement? If the cash flow statement comes up short, you should consider insurance.

There are many types of insurance you can choose from. Two of the most common are described below, along with points to consider as you evaluate which options provide the best solutions for your specific needs.

This type of insurance is commonly introduced through an employer -- through group benefits -- and will generally replace from 65 to 70% of an employee's total gross earnings. The amount of disability insurance you qualify for will depend entirely on how much income you will lose due to your illness. It is very important to understand that most 'group plans' offer only short term disability, meaning coverage will typically last for 90 days to one year. These plans must be augmented by permanent disability plans, which typically cover an insured to age 65.

There are basically three types of disability insurance. A conditionally renewable policy provides coverage for someone in a fixed profession. If this person switches to another profession, the policy could be discontinued or the premiums may change. A guaranteed renewable policy can never be cancelled (unless the policyholder fails to pay policy premiums), but the premiums can go up. A non-cancelable policy cannot be cancelled (unless the policyholder fails to pay policy premiums), nor will the premiums go up.

Different disability policies have different terms. You, in conjunction with your advisor, should carefully review the definition of disability and other variables that can help you to customize the policy and control costs.

Life insurance is probably the type of insurance that is most familiar to most people. There are three main types of life insurance. Term insurance -- one of the simplest and most popular types of insurance -- provides "temporary" coverage for a set period of time, with set premiums determined at the time of purchase. When the term of the policy expires, the coverage also expires (many term policies come with a 'renewable' option, meaning that at the end of the term, the policy-holder may renew the policy without a medical exam, however at a rate based on the attained age at time of renewal. There is also a 'convertible' option, that allows the policy-holder to convert the policy into a permanent policy during the term, provided the policy is in good standing.)

Permanent or whole life insurance combines lifetime coverage (as long as premiums are being paid), a level premium, and a "cash value" (a lump sum building up inside the policy).

Universal life is a form of whole life policy that includes a self-directed tax-sheltered investment component. Many people do not realize that insurance can play a very important direct role in investment strategies, in that investments made inside a life insurance policy, under certain conditions, grow on a tax-sheltered basis, similar to growth inside an RRSP. This is a very useful strategy when business owners are trying to develop tax-advantaged strategies to deal with surplus funds trapped in their corporations.

For people who do not want, or cannot afford to pay a high premium, term insurance may be the best solution since it offers the maximum death benefit for the least amount of money. The trade-off is that term insurance is for a set term, and at time of renewal the cost will increase based upon your age at that time.

You and your financial advisor should carefully evaluate the insurance options available to you so that you can tailor a risk management plan that best meets your needs. Being properly insured will go a long way towards securing your financial success, and protecting you and your family from catastrophic financial loss in the event of an untimely illness, injury or death.

* Joel Attis is a Financial Advisor with AttisCorp Financial Group, Inc. in Moncton.

How to claim life insurance

Death comes uninvited, but when it does, other than being emotionally devastating, it brings along problems. If the deceased had an insurance policy, how do the nominees go about claiming the insurance cover?

Life insurance firms hit speed breaker

The first thing to do in such cases is to get hold of the insurance cover. So it makes sense if the nominee has some idea about the financial situation of the policy-holder. If the nominee has the original policy, then the claims process can be hastened. If not, then other details such as name of the policy-holder, policy number or date of issuance of the policy have to be given to the insurance company.

Life insurers – the road ahead

This delays the entire process of claiming the insurance. Hence, it makes sense to keep your nominee aware of the details.

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The next thing is to call the insurance agent. He can help you get the insurance claim from the company. But, if the nominee is not aware who the insurance agent is, then he/she has to approach the insurance company directly and the relevant claims form has to be filled.

In the claims form, the nominee has to specify the date, place and cause of death, along with the details of the insurance policy.

The claims form needs to be accompanied by a set of documents. The most important is the death certificate, issued by the municipality where the person was buried or cremated. This has to be accompanied by a statement by doctor(s) who treated the policy-holder before death.

In case the death is due to an accident, then a first information report (FIR) needs to be filed with the police. A copy of this has to be submitted with the claims form. Along with this a police inquest report, which has the details of the circumstances of the death and a postmortem report (if at all its carried out) needs to be filed. The nominee needs to prove that he/she is the nominee mentioned in the policy. In this case, a copy of any photo identity card will suffice.

There is no time limitation within which the claim needs to be filed. The only thing that the nominee needs to prove is that the policy was in force when the policy-holder died.

What happens if the policy has lapsed, that is, the policy holder has not paid the premiums. In case of a term insurance, the insurance company does not process the claim. But in case of other kinds of insurance policies a lenient view is taken.

If the policy-holder has paid insurance premiums for three consecutive years and hasn’t paid thereafter, a lenient view is taken. After deducting the premium due and other charges, the proportionate paid-up sum assured is paid.

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Insurance companies allow a grace period of 15 days from the date the premium is due for the payment of premium. In case the policy-holder dies within this period, the policy is still valid and the sum assured is proportionately paid, after deducting the unpaid premium.

Appeals Court holds that insured's failure to cooperate with examination under oath discharges insurer's obligations

Mike Tracy at Rudolph Friedmann LLP brought to my attention a ruling handed down by the Massachusetts Appeals Court on Friday. In Hanover Ins. Co. v. Cape Cod Custom House Theater, Inc., the Appeals Court held that an insurer's failure to cooperate with an examination under oath excuses an insurer from its obligations under the policy, even if the insurer was not prejudiced by the lack of cooperation.

In Hanover the insured sought coverage under a business owner's policy for a break-in at the insured's place of business. After an investigation the insurer reasonably suspected that the break-in might be an inside job, and requested that the insured submit to an examination under oath.

The insured did not appear at the first scheduled examination, and on the advice of counsel refused to answer material questions at the next two examinations.

The trial judge ruled that the insured had materially breached the insurance contract, and that such breach had prejudiced the insurer. However, the trial court declined to relieve the insurer of its obligations under the policy, stating that the prejudice could be cured by an order requiring the insured to pay the attorney's fees of the insurer.

The Appeals Court reversed. The Appeals Court held that an insured's wilful, unexcused refusal to comply with a reasonable request for an examination under oath consititutes a material breach of a condition precedent to the insurance contract and discharges the insurer's obligations under the contract. The Appeals Court stated that this holding is an exception to the general rule that the insurer must show that it was prejudiced by the insured's breach of contract before it is excused from its obligations under the policy.

Laws that help you if your insurer is acting in bad faith

I published this post yesterday, but have revised it thanks to some comments from Andrew Caplan, a partner at Burns & Levinson, http://www.burnslev.com/, regarding some overgeneralizations in my original post.

Massachusetts has a number of consumer-friendly laws, but you have to know how to use them for them to be of use to you.

Mass. Gen. Laws ch. 176D § 3(9) makes it unlawful for an insurer to use such tactics as ignoring communications from an insured with respect to a claim; failing to to make a prompt and fair settlement offer where claims are reasonably clear; or failing to provide a prompt and reasonable explanation of the reason for a denial of a claim.

With respect to insureds who are individuals (such as people making a claim under their homeowner's policy or personal automobile policy), a violation of 176D is also a violation of Mass. Gen. Laws ch. 93A, the Massachusetts consumer protection statute. Where the insured is a business, trial courts generally consider a violation of 176D to be sufficient proof of a violation of 93A, but are not required to do so.

When an insurer violates ch. 93A it is liable for the insured's court costs and attorney's fees, and may also be liable for double or triple damages.

The first step for an individual pursuing a claim for a violation of 176D and 93A is to write a "demand letter." The insurer has thirty days to respond to a demand letter with a reasonable offer of settlement. If the insurer does not respond with a reasonable offer of settlement within thirty days, it will be liable for double or triple damages if the court finds that the failure to make a reasonable offer was "in bad faith with knowledge or reason to know that the [original] act or practice complained of" was a violation of 93A.

In a future post I will discuss what you should say in a demand letter.

Work Comp Claim Process

To effectively manage work comp claims you must have a clear claim reporting process. Make it easy for employees to start the ball rolling. Put claims forms on your company intranet. Train and re-train everyone on what to do if they are injured on the job.

Most workplace accidents and injuries are not dramatic, public spectacles like a crane collapsing. More often its a strained back or repetitive motion injuries.

Make the process simple for your people. Getting your insurer involved quickly is key to claims management. Fast reporting is an imperative.

Don't fall for fancy frills in life insurance covers

How many of you would use a mobile phone predominantly as a calculator? I guess, not many. In fact, you would be wondering if there would be anyone in this world who would answer in the affirmative to this question. Now, if I were to offer a phone without SMS or address book facility, but with a scientific calculator functionality attached, would you still buy it? Not really. Surprisingly, in the world of financial products and services, it is not the case.

Assume the margin for the distributor in selling calculator-enabled mobiles were 10 times that of selling plain vanilla mobiles phones. What would he do in such a case? Most likely, he would only sell phones that had a calculator feature attached — whether or not the customer wanted it. He would wax eloquent about the advanced nature of the calculation facility. Only if a knowledgeable customer insists, would he even show him / her the ‘simple’ phone.

An unwary customer would be subjected to a barrage of ‘features’ and ‘benefits’, without educating her on the real costs extracted by the company and distributor in providing these features. She would be shown unrealistic projections and growth rates of her corpus.

The blatant falsehoods in many of these claims would come forth only years later, by which time the agent would have long gone. The main objective of insurance, which is what the plan is meant for, would typically be given a go-by.

Welcome to the world of financial services. We all know that we need life insurance, much as we have now come to need mobile phones. Now, life insurance in itself is a complete product, where the company takes a premium from the customer, and pays a lumpsum to the family in the unfortunate event of the customer’s demise.

Almost every single life insurance company has this insurance scheme — called a ‘term plan’. But for the distributor or insurance agent, this is not where the juice is.

The high-margin business for an agent is what is called unit-linked insurance plan or Ulip. Here, investment is the ‘calculator’ of our analogy, the red herring thrown in to confuse the customer. The agent would sell Ulip as a great investment plan, which also provides insurance.

Never mind, that it only provides lip service to insurance, just as a phone without SMS or address book would be useless as a mobile phone! Also, never mind that there are better investment plans available in the market (like good standalone scientific calculators) at a much lower price than Ulip.

There is no breach of law here. After all, it is the customer who has the responsibility of reading the fine print and being knowledgeable about various products and associated costs. The distributor would only work to maximise his income; the customer should try and protect her interests.

Thus, if she goes to a mobile store (insurance), then might as well buy a simple and effective mobile phone (term insurance policy at competitive rates). It is worth going to the adjacent shop (electronics) to buy the calculator with desired features (the investment plan). An agent who claims to fill both spaces through his product, only ends up filling his own coffers instead, at the cost of the customer.

Swapnil Pawar, Director PARK Financial Advisors

Life Insurance - Make informed decisions

These days you often hear the term 'investment advisor' in India thanks to open skies policy of the Indian government in the insurance sector. There's no doubt that completion has brought in lot of advantages to the customer but also it has brought in people who want to make money quickly at the expense of the customers. So this article is just an attempt for all the readers to think twice before you sign the dotted lines next time with your 'Investment Advisor' who is interested in selling a Insurance plan which meets all your investment needs.

Many people have conventionally bought life insurance plans mainly for investments, tax benefits and the life cover they offer. No one bothered much about the returns what they offered and the structuring of their premium amounts as long as they enjoyed the tax benefits.

The primary objective of the life insurance is to secure the financial future of a person who is insured in case of eventuality. It does this by paying 'Sum Assured' to the nominee in return of payment of premiums.

The person buying the insurance decides the 'Sum Assured' at the time of buying the insurance plan. The premium will consist of 3 components the knowledge of which is of great significance while selecting the any Insurance Plan.

1. Mortality charges - Mortality charges are incurred by the insurance company to cover the risk of an eventuality (Death) to the individual. The mortality expenses differ depending on the age of the individual and the 'Sum Assured'.
2. Sales and administration expenses - These expenses are incurred by the insurance company for operational purposes and recovered from the premiums that the individual pays towards his policy. Agent commissions, sales and marketing expenses and the overhead costs incurred to run the insurance business on a daily basis are examples of such expenses.
3. Savings component - This portion of the premium is invested by the life insurance company in various investment avenues like government securities (G-secs), bonds, money market instruments and equities in varying proportions. The savings component is what helps generate the returns which insurance companies pay to the policyholder by way of bonuses and the maturity amount.

The insurance market is flooded with large number of plans which makes the decision process more complicated and the 'Agent' will mostly try to sell a policy which brings him huge commissions. Most insurance policies offered by companies fall under two categories. The different policies which are available in the market are the combination of these two kinds of policies.

1. Term Plans - these are pure risk cover plans. The premiums charged by term plans cover only mortality charges and administration expenses. There is no saving element attached in the premium hence no maturity amount. These are the cheapest form of life cover available to any individuals and premiums are decided by the age of entry of the plan and the term of the plan. (Click on this link to compare the term plan premiums across life insurance companies)
2. Endowment Plans - The premium towards an endowment type plan also includes a savings component in addition to the premium charged towards Sum Assured. The popular type of plan sold under this category is 'Money Back Plans' and off late private insurance companies have familiarized the ULIP (Unit Linked Insurance Plans)

So, now you should confront the question - which plan is better for my requirements and how do I go about selecting the plan? I did a quick comparison for this purpose using the official website of Life Insurance Corporation of India by selecting one plan each from term and endowment category.

If you look at the past, the average returns from the endowment plans are in the range of 6-8% within the insurance industry. Even though the private insurers offer the higher returns though the ULIPs off late no one has proved the metal as yet. Please note that a higher exposure to equity through ULIPs is double edged sword which may increase your returns but at the same time it will increase the risks significantly.

As individuals we should not combine the insurance needs and investment needs together. It is always advisable and rational to go for the pure term cover to cover the life and balance surplus can be invested into Mutual funds, NSC and PPF and other avenues. The mutual funds have a tailor made plans to meet the investment requirements of all the individuals. They offer greater flexibility and provide quick liquidity to the investors.

My sincere request to all the readers is to follow some golden rules while considering a investment plan:

1. Start the insurance plan at an early age since the age factor is critical in deciding the premium amounts.
2. Do not ever consider Insurance Plan as an investment tool instead just treat as a risk hedging tool
3. Endowment plans are more suitable for a longer term; do not buy a insurance plan if someone tries to sell a shorter period plan (I myself met many advisors in Mangalore during my recent visit who were trying to sell me 3 year ULIP plans). The people who try to sell these plans are concerned only about their commissions.
4. Take help of the Certified Financial Planners in deciding the insurance plans, the fees you pay to the financial planner is well worth it.

One should read the fine print of the Insurance plans when they decide on a plan. The readers are advised to look into their personal needs and match them with their investment plan to meet their financial goals. I strongly suggest the following articles on Economic Times which will be of great use for the readers.

Three types of insurance policies to buy and Don't fall for fancy frills in life insurance covers

Make informative decisions and money wise!

Life Insurance - your Family, Who Cares?

Like the ostrich, are you sticking your head in the sand when it comes to insuring yourself? According to recent statistics from the insurance industry, sales of the most basic personal protection insurance products, i.e. life insurance and income protection, have been falling, despite reductions in premiums.

Maybe people think if they ignore the need for such insurance, it may go away. It's never going to happen to them - it can't. But it can and it does. Lack of income protection may be a disaster for you and your family. Lack of life insurance would mean devastation for them and there would be nothing whatsoever that you could do about it.

The insurance industry are quite right to be concerned about the reasons for the decline and are clearly making a great effort to communicate the value of both health and income protection and life cover. As one critical illness provider stated, they have received a lot of negative media coverage regarding rejections of claims and payment delays. However, they also make the comment that "Providers are now publishing their claim statistics, and this transparency is helping to improve consumer trust."

The industry feels that some of the problem may lie in their application forms. These are not particularly user-friendly and people can be discouraged from filling in long and complicated-looking forms. Some of the definitions in the policies are very difficult to comprehend and frankly uninspiring. Maybe what is needed is a new look at the marketing of these products with a view to producing more simple and easy to understand literature.

Critical illness cover is designed to pay out an agreed sum should you be diagnosed with any of a list of serious illnesses, such as heart disease, cancer, strokes, diseases of the nervous system etc.,

It's a worrying fact that one in three people will suffer from some type of cancer in their lifetime. Improvements in diagnosis and treatment are encouraging, but taking some types of leukaemia as one example, the treatment can last as long as 18 months or more and return to full time work could be delayed for some time after that. The medical conditions covered will be clearly shown on the policy and this should be studied carefully. The cover is designed to give you and your dependants a cash sum at a critically important time, leaving you to get on with your treatment and recovery. It is extremely important that you disclose all previous illnesses, no matter how trivial. As soon as a claim is made, the first thing the insurer will do is to go through your medical history with a fine tooth comb. Tell them everything and you'll not have a problem.

The effect of critical illness can be far-reaching. You may need to change your career, your car or even your home. It's not a time to be worrying about where your next pay cheque will be coming from. Do consider this really important form of insurance.

A shocking fact is that almost 50% of the population of the UK have absolutely no form of life cover. If you are single, have no debts and absolutely no dependants in need of support in the event of your death, then you probably have no need of life insurance. How many people are in this position?

It's possible that you have some form of insurance through your employment. Check this with your employer. There may be an element of income protection or life assurance but almost certainly this will need topping up.

There are several types of life cover. Term insurance means that your life is covered for an agreed term. Commonly this fits in with the life of your mortgage, or maybe a loan. A whole of life policy is payable on your death.

As far as your family is concerned, would they be able to continue with their current lifestyle if the worst was to happen? Provision should be made for them. At the very minimum you need to cover the period until the youngest child can reasonably be expected to become fully independent.

Don't delay. Take advice on the amount of cover you need. Critical illness and life insurance are imperative if your family is to have financial security. Unless by any chance you happen to be a millionaire!

You'll find all the advice and help that you need if you go online. It's no use going to an individual insurer, it's better to find an experienced broker who'll compare the various companies and come up with some options for you. There'll only be one session of form filling and then you can relax and know that you've taken the first important steps to protect your family.

Good health and long life.

By: Michael Challiner

Allocation question certified to Supreme Judicial Court

The United States Court of Appeals for the First Circuit has put hope into the hearts of those of us who deal frequently with questions of allocation of loss. In Boston Gas Co. v. Century Indem. Co., 529 F.3d 8 (1st Cir. 2008), the court certified questions to the Supreme Judicial Court of Massachusetts about how insurance in environmental damage cases should be allocated among insurers and between insurers and insureds.

Allocation is an issue that comes up most frequently in environmental and toxic tort cases, in which damage occurred over years or decades before it was discovered, thereby possibly triggering coverage by many insurance policies. The Boston Gas case is a typical example: over the course of decades, Boston Gas had factories that produced fuel along with hazardous by-products that leached into the environment. During one 18 year period, Boston Gas had insurance with three consecutive insurers. It sought coverage for the environmental damage from one of the insurers. That insurer wants the other two insurers to contribute to the loss. Whether they must do so is a question of allocation.

Another issue that came up in the Boston Gas case is whether coverage is triggered separately for each policy year. That issue is significant because Boston Gas had a yearly self-insured retention (a deductible) of $100,000. If each policy year is triggered separately, then Boston Gas will have to contribute several deductibles instead of just one.

There are numerous other issues with respect to allocation, from how to deal with periods where the insurance company that provided coverage no longer exists; to how to divide coverage where more than one insurer covers the same policy year; to how to allocate loss among insurers with different policy limits; to . . . I could go on and on.

But the answer to every such question that has come up under Massachusetts law, until now, has been: Who knows? The Supreme Judicial Court of Massachusetts has never issued a clear ruling on allocation. Other states are sharply divided on every issue.

The United States Court of Appeals has now asked the Supreme Judicial Court to answer three basic questions:

1. Should a pro rata (all insurers initially contribute) or joint and several (only one insurer initially contributes) allocation method be used?

2. If a pro rata method should be used, which pro rata method?

3. For an insurer who covered the risk for more than one policy period, should only one self-insured retention apply, or should the self-insured retention for each policy period apply?

Although some allocation methods tend to be more helpful to insurers and some more helpful to insureds (always with exceptions, depending on the case), in the long run clarity will help everyone. Here's hoping the Supreme Judicial Court agrees and chooses to answer the certified questions.