Month: October 2014

If you’re a business owner, you likely already know the value of liability insurance, because – unfortunately – you’re probably a target for lawsuits. This is crucial considering the litigious society we live in; more than 15 million civil lawsuits are filed annually, and one of three small business owners have been sued or threatened with lawsuits.

So how do you prepare for a time when you may be on the receiving end of a lawsuit?

Excess liability insurance

You obviously need commercial insurance coverage. However, to be truly prepared, there’s another policy you also may need – excess liability coverage, or “umbrella liability.” It offers $1 to $5 million – sometimes $10 million – of liability coverage in addition to the liability limits of your existing commercial insurance policies (including general, professional, and employers’ liability, as well as hired or non-owned commercial auto liability.)

Aren’t my commercial liability limits sufficient?

First, liability limits of those policies may have exclusions, so certain claims may not be covered. Excess liability insurance may help fill those gaps, but more importantly, this policy extends liability coverage from existing commercial policies is usually grossly inadequate when compared to the current costs of commercial lawsuits, claims, and judgments. One claim (and the legal fees) can put your business into bankruptcy unless you have very deep pockets. Excess liability could save your business should you exhaust the limits on your other commercial policies.

Granted, not all lawsuits ask for millions of dollars; the numbers depend on the business type and claim. But here’s one liability lawsuit scenario that could apply to most small businesses: Say the court awards $1.5 million in damages to the claimant. However, your professional liability has a $1 million limit. Excess liability would kick in and pay the remaining $500,000.

Without it, your business and/or your personal assets (such as your home and your savings accounts) could be seized to pay the judgment. A lawsuit such as this could well ruin you and your business.

Like all policies, rules on coverage, exclusions, and special situations vary from company to company and by state.

Excess liability overview

Businesses that definitely need excess liability include those that offer professional services; handle sensitive and/or private customer data; and manufacture and sell consumer products.

Those that may be ineligible include companies with extraordinary exposures to risk (such as a white water rafting business); those that revolve around a celebrity or number of celebrities (including actors, writers, public, and political figures and professional athletes); and those with prior claims or liability lawsuits.

As with most policies, cost is commensurate with risk, but it can be relatively inexpensive. Low-risk policyholders without prior claims may be able to purchase $1 million in excess liability insurance for less than $200 annually.

Some providers may require you to increase liability limits on other policies first, so your primary business policy has the highest available limits.

Doing so will increase your premiums somewhat, but the alternative makes obtaining excess liability coverage well worth it for your own peace of mind.

We often see the phrase “bonded and insured”, but what exactly does it mean? This refers to the process of bonding through surety bonds. Although they are a form of commercial insurance at their core, surety bonds work slightly differently: Generally speaking, they play a different role and fulfil a different objective than other insurance policies by financially guaranteeing that a contract will be fulfilled as originally agreed to by the parties to the contract.

Person(s) bonded will:

• remain compliant with a law, regulation, or contract;
• be honest and forthright;
• act with integrity;
• be financially responsible.

Here are three important bond categories:

Commercial surety bonds: Permit, notary, public official, and license bonds are required by law for certain types of companies.

Fidelity bonds: If you own a business, this helps protect you and your clients/customers from employee theft or any act deemed dishonest that results in a financial loss. For example, if a contractor’s employee steals some of a customer’s belongings while on the job, a fidelity bond would cover his and his customer’s losses.

Contract surety bonds: If you’re a contractor, you may need one or more contract surety bonds (which include performance bonds, bid bonds, payment bonds and maintenance bonds). These bond types guarantee that the contractor will honor contract terms, such as what supplies he or she provides, the price for the job, and the work to be performed.

If you own vacant land, you may assume it doesn’t need insurance, but unfortunately, that’s not true.

Vacant land can be a breeding ground for liability lawsuits. You’re responsible for what happens on your property, meaning any accidents to others could cause you big headaches. Although you’re not legally required to carry vacant land insurance, doing so will protect your other assets. If someone is hurt on your property, you could be sued. Vacant land insurance will help pay for injured parties’ medical expenses, legal expenses, and certain types of property damage.

Why do I need vacant land insurance?

If you suspect trespassers may be using your land, you probably need it; if you permit people to use your land, and they pay you for the privilege, you’re liable for anything that may happen to them. Even if they don’t pay, you’re liable, but not to the same extent.

What can happen?

• Hunters and fishermen pose heightened risks of injuries or fatal wounds. Even when it’s something that could be considered their fault, such as falling into a creek.
• ATV accidents: There were 1,701 ATV rider deaths during a five-year study, conducted by The Insurance Institute for Highway Safety in 2013. One could have been on your land.
• Hikers unfamiliar with the terrain can be injured, with resulting liability claims.

Protect your assets

Insuring land isn’t difficult, and it’s reasonably priced, especially if it’s an extension of homeowners or farmers liability policies. However, you may also need umbrella insurance, which will add liability coverage from $1 million to $5 million. If a lawsuit maxes out a homeowners or farmers policy liability limits, this coverage kicks in.

To decide if you need vacant land insurance, consider your land’s current use and assess possible risks. Also, know your state’s landowner laws. Your agent will help you determine if and what coverage you may need.

Everyone is on the lookout for auto insurance discounts, but strangely, many are missing out on two discount types that could net them serious savings. Why? They don’t know they exist.

Affinity Discounts

Members of clubs or credit unions may get offers of exclusive insurance discounts by virtue of their memberships. For example, AARP has affiliations with many large insurers, and automobile clubs regularly offer discounts to members through a number of insurers. These programs are called affinity discounts, and more than 50 percent of large insurers offer them. Savings usually average between 3 percent and 7 percent, but some can save you up to 20 percent on premiums.

If you’re not a credit union or auto club member, you could get a discount through other affiliations. For example, discounts may be available to union members, employees of certain companies, members of professional organizations, and alumni association members.

Occupational Discounts

If you hold a degree in a certain field, it could mean a discount, and individuals in certain occupations may also qualify. The most common occupations include first responders, teachers, nurses and other healthcare professionals, and accountants.

Discounts vary according to insurers. Often these discounts can be less than stellar, but at the same time, if you do qualify, it could add up to savings. Discuss affinity discounts with your agent; he or she will be able to help you decide if one can be applied to your existing policy, or if the policy you have already includes discounts of other types.

Many people are concerned about the cost of a health emergency. If you don’t think you have sufficient health insurance to cover yourself in an emergency, perhaps catastrophic health insurance is something you might consider.

Catastrophic health insurance focuses on hospital care for those individuals who develop serious health issues – it’s basically “worst case scenario” coverage, covering hospitalization and some incidental expenses resulting from unexpected health conditions.

Those who benefit include

• budget-conscious individuals
• early retirees who aren’t qualified for Medicare
• employees who aren’t enrolled in a group health insurance program
• self-employed individuals
• young, healthy individuals
• those people who rarely visit their doctors, don’t have pre-existing conditions, or take prescription drugs
• those who know they’ll have employer-sponsored health insurance within the next year

As with any insurance program, there are pros and cons:

Pros

• Often premiums are lower, depending on your current health status. They can be as low as $30 but as high as $300.
• There are no lifetime limits.
• You may be able to obtain corresponding Health Savings.

Accounts (HSA), which can help pay for items that aren’t covered.

Cons

• There are large out-of-pocket expenses and higher annual deductibles (which could range from $250 to $5,000).
• Coverage can’t always be paired with HSAs.
• There is a lack of or limited preventive coverage.
• It may not cover prescription drugs, immunizations or doctors’ visits.
• Only those under 30, and those over 30 who meet Affordable Care Act’s (ACA) hardship exemptions, qualify under the ACA. Others need private plans.

Almost 70 percent of Americans take at least one prescription drug, and 50 percent take at least two. They may be necessary and helpful, but there’s no denying that they can also be expensive. Here are three ways to save on prescriptions:

Talk to your doctor: He or she can help you save on prescription costs. If your physician can write your next prescription for two months instead of one, you’ll minimize the dispensing fee.

Also, if your doctor recommends a new medication, ask him or her to suggest other drugs that can be prescribed for the same condition. Contact your insurer to see whether each is covered, what their co-payments are, and if there are formulary exclusions. Check prices with a pharmacy, then ask your doctor if he or she can order the less expensive one.

Doctors can usually prescribe generic versions of a drug. In most cases, these versions are cheaper than the “name brand.” Your doctor may also be able to give you free samples provided by the drug company.

Check with the drug manufacturer: Many offer programs for those who can’t afford medications. If you meet their criteria, you could get your medication free or at a significant discount.

Seek assistance if on Medicare: If you’re on Medicare, federal and state government assistance is available. You may also get support with premiums, co-payments, and deductibles. Many state subsidy programs also offer prescription assistance for senior citizens; this helps eliminate coverage gaps or cost-sharing not covered by Medicare Part-D.

We all think we know about life insurance. After all, how complicated can it be? Well, in fact, the whole area of life insurance can be fairly complex. For example, take the following five commonly held beliefs. In fact, these are myths. Here’s why:

I don’t need coverage because I’m single and have no dependents. The idea that only primary breadwinners need life insurance is old school. Consider how much a homemaker is worth; probably more than you think, especially when it comes to child-care and household maintenance costs. As well, life insurance may be desirable, even for single individuals, to cover personal debts and end-of-life bills such as funeral expenses.

My employer-paid coverage is sufficient. Maybe – or maybe not. If you have dependents or know that you will need extra coverage for estate taxes upon your death, you may need more than your employer provides.

My coverage should be twice my annual salary. How much life insurance you need depends on your personal situation – but the rule of thumb is that coverage should be computed based on outflows, not inflows.

I’m better off investing than buying insurance. It depends on how much money you’ve accumulated. You’re taking a big chance by depending solely on your investments to cover emergencies. You may not have enough, especially in the early years of saving. Even if you do, you could deplete your retirement nest egg. Then what?

My premiums are tax-deductible. Probably not. The only time personal life insurance is tax-deductible is when the policyholder is a self-employed business owner, and the coverage is used as asset protection for the business owner. Then, it’s deductible on the Schedule C of Form 1040.

Do these debunked myths make you think? If so, your advisor can help you determine if life insurance is right for you based on your individual financial circumstances and goals.