Exclusions

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

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

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

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

Beyond Simple Life Insurance

Anna Vander Broek, 12.16.08, 09:35 AM EST

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


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

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


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

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

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

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

How much life insurance do we need?

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

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

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

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

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

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

Insurance Sneak Peek 2009

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

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

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


The Watch List

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

Picks

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

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

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

The Big Trend

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

The Misplaced Assumption

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

The Bold Prediction

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

The Watch List

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

Drinkers face life insurance hike

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

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

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

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

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

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

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

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

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

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

Very heavy drinkers could be refused cover completely.

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

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

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

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

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

Choose a policy that suits your needs

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

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

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

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

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

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

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

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

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

You, Your Employees, ERISA, and Your House

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are you managing your life insurance policy correctly?

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

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

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

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

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

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

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

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

Life insurance benefits

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

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

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

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

Negative outlook for UK life insurance

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

More UK adults without life insurance

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

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

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

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

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

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

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

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

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

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

Your Business Insurance Renewals

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

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

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

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

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