Month: February 2014

Should You Buy a “Claims-Made” Insurance Policy?

One of the most important things to understand about commercial insurance policies is what’s called “claims-made policies.” If you own a business, you need to understand this, because if you don’t, it could cost you everything.

When you purchase standard business insurance such as professional liability coverage, you’ll likely be offered two options: a claims-made policy and an occurrence policy. The online definition of occurrence policy is: “Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.”

Claims-made policies

Most standard commercial policies are claims-made policies. Although there are many variations, Claims Made and Reported policies are most common. These policies sound simple – they pay for claims made during the time you hold your policy – but it can get more complicated: It hinges on the time period in which your policy is active.

Businesses can be sued long after they’ve finished work – and after insurance policies have been canceled.

And that’s the issue: If, for example, the materials used in your products were identified as being dangerous, or the structure your company erected turned out to be constructed in a way that pointed to negligence – and this didn’t happen until years after the work was done – you can still be sued.

Policy must be active at two points

Although your policy would cover claims just like any kind of insurance policy would, there’s a common misunderstanding. In order for a claims-made policy to cover things you’re liable for, either because of negligence or because of the use of faulty or dangerous materials, your policy needs to be active at two points:

• when the claim is reported to your insurer, and
• when you performed the work.

For example, say you owned a computer repair shop from 2009 to 2011. You buy a claims-made policy we’ll call Policy A. This business insurance policy is active from 2009 to 2011, and then you cancel it, either because you’re changing businesses, closing down, or purchasing a new claims-made policy.

Six months after you’ve closed down or moved on, a claim is filed against you for using defective/damaged parts during the time you were covered by Policy A (from 2009 to 2011). Unfortunately for you, in this instance, your claim won’t be covered.

All too often, a policyholder assumes Policy A would cover claims stemming from work done while insured under Policy A, even if they no longer have the policy.

It wouldn’t, though; you, the policyholder, have to meet both the aforementioned requirements for claims to be covered under Policy A.

Because Policy A is now cancelled, it’s not going to cover claims arising from work you did while insured under it.

The chance of this happening depends on the type of work you do, so take that into consideration. And although you may subscribe to the adage, “never look back,” many claimants do.

Talk with your insurance agent to find out whether a claims-made policy is right for your business.

Commercial auto insurance or personal auto insurance? That is the question. How do you know which you need, and what defines a commercial vehicle?

Auto insurance carriers have specific guidelines that distinguish personal vehicles from commercial vehicles, but these lines blur when it comes to issues such as telecommuting.

If you’re driving your vehicle to and from work, you don’t need commercial coverage. However, if you use it in your job, or if you’re self-employed and use it for business, you’ll probably need a commercial policy – especially if you have passengers.

You definitely need commercial coverage if you transport people, products, food, or other goods; or if employees drive your vehicle. If you own a business, and a vehicle is in your business’ name, you’ll need commercial coverage, regardless of how often or how it’s used.

Be forewarned: If you list a commercially used vehicle on your personal auto policy, your insurer won’t pay the claim. This leaves you responsible for all accident-related expenses such as medical costs and property damage.

It’s also not uncommon to see claims and lawsuits skyrocket when people realize the involved vehicle is a commercial one. Without coverage this could cost you your business, and your home and other assets.

Commercial auto insurance isn’t that much more expensive than personal insurance, especially if usage is limited and you don’t transport people. But it’s worth the peace of mind, even if you never need to file a claim.

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You’re traveling, and whether it’s a vacation or a work trip, you want to be prepared for gala evening events. So, you bring a few pieces of your good jewelry. Understandable, but perhaps not such a good idea; what happens if it’s lost or stolen while you’re away from home?

It may put a damper on your mood, but if you plan ahead, you might not be out-of-pocket.

Many homeowners don’t realize that the same policy that covers them for losses at home could also cover stolen items if the theft occurred outside your home.

Covering off-premises losses

Check your policy. Some insurance companies will have specific rules regarding off-premises coverage, and others may not offer this coverage. If you’ll be traveling extensively, look for a policy that includes off-premises coverage.

If it doesn’t, you may have to purchase it as a rider policy. You’ll pay extra for this coverage; however, if the worst happens, you’ll find it worth the cost.

Bear in mind that this coverage may come with limitations. Certain items may not be covered at all, while others may have certain claim limits imposed on them.

Items like jewelry and electronics could be covered, but it may not be for their total value.

Scheduling valuables

One way to this coverage gap is to schedule your extremely valuable items. This means that the insurance company agrees to a fixed value for a specific item and covers most reasons for its loss. This will also allow you to set a specific deductible for the scheduled item, but you should also pay attention to the deductible for other items; some that haven’t been scheduled are subject to a different deductible.

If you’re concerned about protecting your personal belongings at all times, make sure you purchase a policy that travels with you and your valuables.

People are afraid of doing anything that might cause their auto insurance premiums to increase – even filing a claim for damages that someone else admitted to causing.

In this situation, do you make a claim with your insurer, or do you wait for the other party to file a claim with his or her insurance company?

Although you might be reluctant to contact your insurer, you should always do so. If the other party never makes a claim, you could be left paying for the damage he or she caused. You should also immediately file a formal claim with the other party’s insurer.

If he or she disappears or has given you false information, you can rely on your own policy’s uninsured/underinsured motorists’ coverage – and rates shouldn’t go up.

In general, if you need to file a claim for damage that isn’t your fault, it’s unlikely your premiums will rise unless you have had multiple claims, especially in a one-year period. If you’ve had four accidents in a year, even if none of them was your fault, your insurer will take note.

This claims history may signal fraud, bad driving habits, or bad luck – none of which insurers like.

If you have a bad claims history, and the accident hasn’t caused major damage, both parties might consider leaving insurers out of it. But do ensure you write down the at-fault driver’s license and plate number, as well as insurance and other pertinent information.

Remember, if you’re suspicious, contact your insurer regardless.

There’s good news and not-so-good news for those approaching retirement and possibly losing their employers’ health care plans. It may be time to learn what Medicare will (and won’t) provide, and decide whether you will need Medicare supplemental insurance.

There have been many changes in Medicare law since it was first revised in 2003. Fortunately, these new changes have improved the health and prescription coverage of disabled and elderly Americans by providing more protection against health care costs.

By allowing the private sector to compete for Medicare supplemental insurance, seniors and the disabled have greater control over coverage. However, determining whether you need supplemental coverage can be complicated, and you’ll need expert advice to make the right decision. Here are some issues to consider.

• Traditional Medicare only covers up to 80 percent of average of medical expenses. Americans are living longer, and that means there’s a greater chance of developing chronic or acute diseases that could impact health care costs. As reasonable as 80 percent sounds, if your health care bills add up to a million dollars, you’d be liable for the additional $200,000.
• Your costs will be higher if you’re diagnosed with two different diseases, because you’ll be responsible for double deductibles. Even with one diagnosis, you have more out-of-pocket expenses than you would in an employer-sponsored health care insurance. Having the right supplemental insurance can greatly reduce expenses.
• Your Medicare supplemental insurance is a consistent monthly premium. You can budget for supplemental insurance far more easily than for sudden illnesses or injuries. The more coverage your supplemental package offers, the more it will cost you. You won’t have to budget as much for unexpected costs.

Contact your insurance advisor, who can administer a questionnaire to help you decide whether Medicare supplemental insurance is right for you.

Whether you’re starting a new business, retiring, or leaving your employer, one of the downsides is that your health insurance could be ending. Other changes, such as divorce or altered student status, can also cause coverage to end, and since many of these changes are inevitable, understanding your options is crucial.

If you’ve lost your job, the best option is to find another job offering healthcare, which is easier said than done these days. While you’re looking, opt for coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA allows your current benefits to continue for 18 months.

With COBRA, you will have to pay 100 percent of the premium yourself. This may be expensive and difficult for you, but under healthcare reform, you may qualify for some assistance due to the circumstances, or you may be eligible for Medicaid under certain income requirements. If you’ve just recently divorced, you can also get COBRA coverage through your ex-spouse’s health insurance plan.

Purchasing health insurance

The best option overall is to buy private individual health insurance, which will likely be more expensive than employer-sponsored coverage. However, you’ll have the opportunity to compare a variety of plans and find a policy that provides the right coverage for your individual circumstances at an affordable rate.

You may not be able to find a policy offering the same benefits as your previous plan, but with fines for not having health care coverage soon in effect, it’s far better than not having coverage at all.

As if anything to do with insurance isn’t hard enough to understand, things like healthcare billing certainly make it so. Policyholders commonly experience “balanced billing,” and getting one from a hospital ER, for example, might not be anything like you’d expect.

Common health insurance policy types – HMO and PPO plans – work within specific networks of healthcare providers to provide lower premiums. Unfortunately, even when visiting an in-network hospital, the doctor or surgeon who treated you may not be part of the same network.

After visiting a hospital, clinic, or any medical facility operating outside of your health insurance network, you may receive a bill for the difference owed after your health insurance has paid its share of the medical provider’s invoice.

For example, if you have a visit to a hospital emergency room (ER), you might receive a bill that looks a bit like this:

The hospital charges your insurance carrier $500 for an ER visit. The insurance pays $250. You don’t pay anything additional because the hospital is in a network contract with your insurance provider. You’re only responsible for co-insurance and co-pay amounts less your deductible.

A treating doctor also charges $500 for your ER visit. Insurance pays $250. Because the treating doctor hasn’t a contract with your insurance provider, you’re responsible for the additional $250.

To avoid “balanced billing”, ask your insurance agent which healthcare providers are in your policy’s provider network, so you can go to network providers wherever possible.

If you need health insurance, don’t feel as though you can buy coverage only through the government’s website or any of the third parties soliciting consumers. The insurance agent you have always worked with (and who is familiar with your individual situation) can answer your questions about healthcare reform and help you compare coverage. You also can purchase a plan through him or her.

Life insurance has traditionally been used to pay for the care of a loved one in the event of your untimely death, but increasingly it’s being used in other, more creative ways.

There are two basic scenarios in which you would require life insurance in retirement. First, you don’t have enough money to cover your final expenses, and you don’t want to burden your family. So, you purchase a small life insurance policy to cover these expenses.

Second, you have dependents – usually a spouse and/or children – who would not have sufficient income to live comfortably after you die. So, you purchase a larger life insurance policy to support your loved ones until they can provide for themselves (or for life, depending on the circumstances.)

Creative Uses for Life Insurance

Beyond these basic intents, however, life insurance can provide a creative solution to other problems that may crop up.

For example, in this scenario, you have a considerable estate, and don’t want to leave your heirs with the burden of paying estate taxes. But there’s a simple solution: You could set up a life insurance policy to pay the estate tax.

Here’s a more realistic scenario that resonates with many of us. Often called “pension maximization,” this strategy solves another problem.

In this scenario, you and your spouse want to take significant withdrawals from your retirement plans, with the result that your savings will be exhausted when one of you dies. The solution here is to purchase a life insurance plan to provide something for the remaining spouse.

In all of these instances, you would probably purchase permanent life insurance instead of term life insurance, which only stays in effect for a specific time period.

Your advisor is well-equipped to explain the differences between permanent and term life insurance, and to recommend which is best for you based on your individual circumstances.