Four Things to Know About Contractual Insurance

Managing contractual insurance requirements from your vendors and subcontractors is rarely straightforward, but it is an integral part of risk management.

Insurance requirements under any contract can be difficult to administer, because the more complicated the project or service, the more sophisticated vendors’ and subs’ insurance programs may be.

When evaluating deductibles, self-insured retentions (SIRs) or available insurance limits, your organization can take a variety of approaches.

How you approach insurance requirements should depend on at least these four considerations:

  • How critical the services the vendor furnishes are to your organization’s mission.
  • The size and scope of the contract, including the exposure (what can go wrong that can cost you money or goodwill) your organization faces from the proposed project or service.
  • The financial stability of the vendor or supplier, and the financial rating of its insurance carrier.
  • Your history with that vendor. A new vendor requires more scrutiny than one you have utilized for years.

Since the vendor or supplier has to pay premiums and will want to pay for less insurance rather than more, deductibles, limits and scope of coverage are all bargaining chips to the vendor. For example, a small contractor who performs routine maintenance at your facility may balk at furnishing $1 million in general liability coverage. For a small project, you may agree to lower that limit.

However, in one particular case that occurred in a Hawaiian hospital, a contractor cut the power to an oxygen line to premature babies. Hospital maintenance responded quickly; however, $1 million in coverage would never have settled this accident if the incident had not ended so well.

SIRs are the loss portion that the insured absorbs before insurance coverage pays. Accepting an SIR requires additional deliberation.

Deductibles are generally paid by the insurance company, which then recovers that amount from its insured. In the event of a loss with an SIR, in most case you will negotiate directly with your contractor to obtain the SIR amount.

The larger the company, the more likely they are to have an SIR as opposed to a deductible. SIRs usually pertain to liability policies, and may apply both to damage payments and expense amounts paid to handle the claim, or only to the damage amounts.

This difference can be tricky, because SIR provisions vary. Reviewing policy provisions and endorsements before a loss occurs is the only sure way to determine how a claim will be handled. You will be more comfortable accepting an SIR in lieu of a deductible, knowing that the vendor’s insurance company would not write coverage with an SIR if the company’s operations, loss history or loss funding were unstable.

Like everything in life, insurance coverage is negotiable. If you have questions on the insurance requirements your company should request, we are here to assist.

Key Person Insurance Helps Protect Your Business

In small businesses, the death or disability of a key employee is difficult to overcome. His or her share in the business normally transfers to heirs. This can cause problems for businesses that may not want a new partner or cannot afford to buy out heirs.

To avoid this problem, many business owners enter into a buy-sell agreement. This “set price” agreement means that upon a business partner’s death or disability, the business is pre-valued, using life insurance as the payment guarantee. Here are five reasons why you should consider this coverage.

  • Upon your partner’s death, heirs do not have the expertise to replace your partner. You may find yourself saddled with a partner that is a liability rather than an asset.
  • Financing is the lifeblood of almost any business. Banks may insist on this coverage for partnerships or large companies.
  • This coverage offers financial security to heirs or those dependent on a key person.
  • You and your partner’s personalities may be the driving force behind the business.
  • Key persons may be others in your organization, not just partners. Consider how long it would take to replace a long-term employee responsible for training and motivating your sales team.

Determining how much coverage to buy and who name as beneficiary depends your company’s revenue, how much the key person contributes and the type of life insurance. If your partner or a key person dies or is disabled, you should be prepared. Key person coverage can help. Call us today to discuss your business insurance needs.

Warning! Letting Your Policy Lapse Could Cost You

We’ve all had moments when we kick ourselves for forgetting something. You get home from the market and realize you’ve forgotten one ingredient for dinner. You’ve forgotten your sister’s birthday or the annual company picnic. Normally, you can recover from these momentary memory lapses, but no matter what, don’t forget to pay your insurance premium on time! That’s one lapse that could cost you.

Most home, auto, and PC policies contain no grace period. Even if you’re a single day late, the insurance company could choose not to accept your payment and cancel your insurance policy. In most states, it’s illegal to be uninsured. In addition to possible legal fees, there are other repercussions.

The Risks of a Lapsed Policy

Whether a lapse is intentional or not, it’s not worth the risk. Any lapse in an insurance policy can place you in a much higher risk bracket, especially if it’s been 30 days or longer. Once you reapply for insurance, your rates could be raised drastically for the same amount of coverage. And you have to consider Murphy’s Law: only once you’re uninsured will you get into an accident.

You’re still personally liable for the damages if you caused the crash and your out-of-pocket costs can be devastating.

If necessary, consider an automatic draft from your bank account. Just be diligent in notifying the insurance company if there’s any change with your card. Losing your policy because your card was lost is no excuse.

Preventing Insurance Lapses

There may be multiple reasons to avoid paying your insurance bill, but none is worth the long-term consequences. Stick to a budget that allows for your insurance payments and set up email reminders for bill payments. Paying your insurance bill is essential to maintaining coverage and affordable rates, and if you have to tie a string around your finger to remind yourself to check your insurance bill is paid each month, do it, because the alternative is not one you want.

Three Auto Insurance Facts That Might Surprise You

Even savvy car insurance customers might not be aware of all the little-known facts about car insurance claims and coverage.

  1. Your insurance policy will probably cover you while you are in Canada. Driving in Canada is rarely discussed when purchasing auto insurance. Thankfully though, most insurance companies extend your same policy’s coverage while north of the border. Contact your insurer well in advance so they can give you a Canadian insurance card that complies with their regulations.
  1. Your insurance policy will probably NOT cover you in Mexico. However, some companies will allow your policy to cover you up to a certain number of miles even after venturing beyond the border, but you definitely need to check first as this varies from insurer to insurer. Additionally, if you need to drive into Mexico more than your insurance company will allow, often companies will have an endorsement you can add to do so.
  1. Rear-end accidents are not automatically charged to the person in back. Many people believe when a ‘back-end’ or rear accident happens, it’s always the fault of the person in the back. While this might be true in the majority of cases, it’s not always true. What if there were a person backing up in the street and hit the front end of someone who was parked or completely stopped?

When it comes to insurance, ignorance certainly isn’t bliss. In situations like these, you’ll often realize the implications of your insurance choices or lack of knowledge about your auto insurance far too late and only after something happens.

What the Individual Mandate Means for You

One thing is certain for 2014: With the implementation of the Affordable Care Act (ACA), major changes are underway that affect more than just your healthcare options.

The most significant provision of the ACA requires all Americans to have healthcare. Known as the individual mandate, this portion of the bill imposes a penalty on those without coverage, but allows for certain exemptions. So, how will the ACA affect your taxes?

The Individual Mandate

Starting in 2014, your health insurer must file a report containing information regarding who is covered and the forms of coverage provided.

In 2015, when you file your 2014 tax return, you’ll be asked whether you had health insurance. If the federal government finds you didn’t have healthcare insurance and you didn’t qualify for exemptions, you’ll be issued a penalty. This penalty will be subtracted from your tax refund and starts at $95 per person and $285 for a family of three. The penalty will increase until 2016, when further increases will be reviewed.

How Do I Qualify for Exemptions?

Those exempt from the ACA individual mandate include:

  • Illegal immigrants
  • Certain religious members
  • Inmates
  • Native Americans
  • Those with income below taxable level
  • Those who pay more than 8 percent of their income for healthcare

Others participating in the federal health program may also be exempt. If you already have health insurance, don’t worry about penalties and exemptions, and if you don’t have health insurance, new state exchanges give citizens another avenue for comprehensive coverage at an affordable rate.

Whether you’ve been in support of the ACA or not, it’s here, so it’s not too early or too late to start exploring your healthcare options to avoid a tax penalty.

Time to Get Ready for Next Year’s Healthcare Changes

As 2014 approaches, the Affordable Care Act (ACA) will bring many changes not only for American citizens, but also for doctors and insurance companies.

How it Impacts You

If you already have health insurance, 2014 will proceed normally. If you don’t purchase health insurance, you could incur a penalty. If you purchase health insurance through a state exchange, you may qualify for a federal subsidy if your income is less than 400 percent of the federal poverty level. That’s around $43,000 per year for singles, and $92,000 for families. There are two types of subsidies:

Premium Assistance Tax Credit: These reduce the amount you pay for healthcare through tax credits. The amount is determined by a sliding scale based on income.

Cost-Sharing Assistance: This subsidy lowers your out of pocket cap based on your income.

How it Impacts Doctors

Primary care will be the focus in 2014. Financial incentives will be offered to primary-care doctors. Overall, medical facilities will be pressured to keep practices cost effective while encouraging patient health. Funds have also been dedicated to healthcare innovation studies.

How it Impacts Insurance Companies

Insurance companies can no longer deny citizens with pre-existing conditions healthcare or charge higher premiums. Lifetime limits are banned and insurance companies must spend 80 percent of premiums on actual medical care. High-dollar advertising budgets and administrative costs will feel the crunch, but it also means lower premiums for you.

Are You Healthy Enough for Life Insurance?

Life insurance, the traditional wisdom holds, is easy to obtain when you’re young and healthy, but can be difficult to obtain (or prohibitively expensive) as you age or experience health problems.

Is it worth considering, then, if you’re not in good health?

The traditional wisdom is, to a great extent, true. The cheapest rates for life insurance, which are considered select or preferred rates, are available only to those individuals who are healthy themselves and who have a family history of good health. These rates exclude individuals who take certain medications (such as heart medications), who are grossly overweight, who smoke, or who engage in risky activities such as skydiving.

If you fall into one or more of those categories, you could pay 50 percent more than preferred rates for your life insurance.

You can still get life insurance

That doesn’t mean, however, that you can’t get life insurance; it may just cost more – a lot more! For that reason, it’s generally a good idea to get advice before you buy. One insurance company may charge much less than another insurance company simply because its underwriters estimate the risk of your condition differently.

One word to the wise: Don’t lie about negative information that may raise your rates, even if you think you can get away with it. (Who will know that you smoke, you might think.) Insurance companies will investigate suspicious claims, and if your insurer discovers that you lied on your application, it will deny the claim. Your heirs could even be tied up in court for years.

Your best option: A knowledgeable advisor or agent can be helpful in this regard, and they will know which companies are best to work with given your conditions, and those which can navigate you through the application process for a nonstandard policy.