Key Personnel Insurance: What Is It and Who Needs It?

Is the success of your business dependent on a single person or a key group of people? Could your company survive without you or other leaders?

Many small businesses would suffer greatly from the death of one valuable employee. This is where key personnel insurance comes in.

If a company could face closure after the loss of an important employee, key personnel insurance can provide the financial stability for the business to survive this loss. In instances where it is not feasible for the company to go on without the key employee, the funds from this policy can provide severance to employees, funds for investors, and a budget to close the business smoothly.

This coverage is available in two forms: key person life insurance and key person disability insurance.

The life insurance policy pays the business if the key employee dies. The funds can be used to pay off debts, buy out surviving shareholders, cover costs of replacing the employee, and provide for revenue that is lost due to the employee’s absence. The policy can be set up as term or whole life insurance.

The disability policy provides funds to the business if the key person becomes unable to work, either entirely or partially. Rather than pay the employee as typical disability insurance would, the policy provides funds for the company to compensate for lost revenue or to hire a replacement.

The amount of coverage for either policy should be based on the key person’s income and the portion of the overall business revenue that this reflects. These funds could provide the lifeline a company needs to survive a significant employee loss.

Why Is an Insurance Lapse So Bad for Business?

Small-business owners have a lot on their plates. Managing multiple moving parts, wearing many hats, and juggling the responsibilities of work and home can prove challenging.

In the midst of all this, something may occur that shouldn’t: a lapse in insurance coverage.

Whether the premium payment was overlooked or other circumstances caused the owner to cancel a policy, when there is a lapse in coverage, the business is left without insurance protection.

This isn’t a good thing. In fact, it can have serious repercussions. Four of these consequences top the list.

1. No net. While a tightrope walker can perform without a net, it’s risky. The same goes for business owners, although the risk is usually even higher. When insurance lapses, the business is left with no liability coverage, no property insurance, and no funds for defense during litigation. One incident without insurance to cover the costs could potentially close the company’s doors forever.

2. No discount. In most cases, businesses can receive a continuous coverage discount for maintaining constant coverage. Avoiding any lapses demonstrates stability to insurance companies, and they reward it with better rates. If the business experiences a lapse in coverage that lasts more than 30 days, this discount is usually lost.

3. No long-tail coverage. Maintaining constant coverage with the same insurance company offers advantages. One is long-tail coverage. If you carry a liability policy that includes a standard completed operations portion, the work your company performs is typically covered for the entire duration of the policy.

For example, if you opened the policy four years ago and you are sued for something that happened three years ago, the liability policy will kick in, even if the project in question is not a current job. If you experience a lapse in coverage, you will no longer be eligible for this long-tail coverage.

4. No reputation. A lapse in insurance coverage can hurt the reputation of your business with insurance underwriters. Since most small-business coverage is handled on a case-by-case basis, the underwriter must decide in each situation whether a business is a good fit or worthy of risk. If they see a lapse (or multiple lapses) in coverage, underwriters will be less likely to want to extend the coverage to the company. This can mean denial of coverage or higher premiums.

There may be some situations in which a lapse in coverage seems entirely appropriate, such as for seasonal businesses. However, it’s important to weigh the consequences of this lapse with the benefits of maintaining continuous coverage. And for those who may believe that a lapse in coverage is “no big deal,” it’s important to remember the risks involved when running a business without protection.

To keep insurance coverage in place, try not to think of it as an expense. It is a necessity. By avoiding any lapse in coverage, you’ll set your business up for better savings, smoother operations, and greater success.

We’re here as your resource and are happy to answer any questions you have about continuous coverage and how it can benefit your business.

Affordable Care Act Open Enrollment

Open enrollment for 2019 under the Affordable Care Act (ACA) begins November 1, 2019, and ends December 15, 2019.

What It Is

Open enrollment is the annual time when individuals may buy health plans through the state’s online health insurance exchanges. If you enroll during this time, coverage begins January 1, 2020. If you miss this important window, you cannot buy coverage from the “Marketplace” until the next open enrollment period, during late 2020. While individuals can use the government website to enroll, a trusted insurance agent makes navigating the process easier.

How It Works

In the past, a tax penalty applied to Americans without health insurance. The current administration eliminated that penalty for 2019. If you were uninsured in 2018, however, you have to pay in 2019: $695 for adults and $347.50 for children, or 2 percent of your yearly income, whichever is greater.

In 2017 and previously, open enrollment ran 92 days, through January 31. Buyers had more time to research coverage and enroll. That changed in 2018, with the open enrollment period decreasing to 45 days.

While the window is tight for open enrollment, certain circumstances such as a job loss or a loss of coverage because of divorce can qualify you for a Special Enrollment Period of 60 days.

How We Can Help

Rather than going it alone on the government website, use our agency to help you find a plan that meets your needs. Copays, deductibles, and coinsurance amounts vary by plan, so working with a professional can help you decide which plan is best for you and your family.

Choosing health care insurance is one of the most important decisions you can make in your financial planning, so don’t go it alone. Contact our office to help guide you through the plans, which range from Bronze to Silver, Gold, and Platinum.

As open enrollment nears, we often receive a number of phone calls for assistance. Be proactive and contact us a few weeks prior to open enrollment to discuss your options, so you have plenty of time to choose a plan and enroll.

Who Pays the Medical Bills If You’re Injured in a Ride Share?

Need a ride? Today all it takes is a smartphone and a downloaded app like Uber or Lyft. However, if you’re injured during the journey, whose insurance covers you?

Ride-share companies have gone to great lengths to be sure that accidents that arise out of their operations are insured. Like any business, a ride-share company does not want to be in the courtroom, where jury awards and expensive legal fees eat into profits. However, which insurance applies can be confusing.

From when the driver logs in to the app until a passenger leaves the vehicle, coverage varies. Each “period” of driver/rider interface falls under different insurance coverage.

While you’re occupying a ride-share vehicle, the ride-share company’s insurance provides coverage. If you’re injured, the ride-share company should handle your claim.

If another driver is at fault and has no insurance, ride-share operators usually carry uninsured and underinsured coverage through the company, as well. The maximum limit of liability coverage is $1 million, which is usually enough to cover most injuries and health concerns.

However, your own auto policy may respond. Although policy wording varies, most auto policies provide medical payments to cover your injury.

Additionally, if the ride share’s limits of liability are insufficient to cover an uninsured motorist event, you can file a claim with your own insurer to determine if your coverage applies.

Feel free to contact our office with any questions about ride-sharing coverage. As your go-to source for insurance info, we are happy to help.

Understanding Taxes on Life Insurance

One of the greatest things about life insurance, other than that it provides for your loved ones in the event you should pass away unexpectedly, is that the proceeds that go to your beneficiaries generally are not taxable.

That said, there are situations in which part of the payout may go to Uncle Sam, and it is a good idea to be aware of them.

First, when the payout is made to a beneficiary after someone dies, it is not taxable. This is the most common use of life insurance, so you can rest easy knowing your insurance beneficiaries will not be hit with a tax bill.

A life insurance payout is also not taxed if it is made while the insured is terminally or chronically ill and there is a so-called terminal illness rider in place. In this case, the payout is generally treated as if it were paid upon the policyholder’s death.

So, when is a payout of life insurance taxable?

One instance is when payouts are made in installments instead of in full. Installment plans may help individuals who fear they will blow the lump sum all at once. If this is the case, and the payout is in installments, the death benefit is not taxable, but the interest that accrues on the payouts is.

Another situation that can make a life insurance payout taxable is having a large estate. In 2019, this applies to an estate that is worth more than $11.4 million. Why? In 2019, the Federal Estate Tax Exclusion amount is $11.4 million for individuals. If you have an estate valued above that amount when you die, any amount above $11.4 million is taxed at 40 percent. The part of your estate that your spouse inherits is exempt.

So, if your beneficiary is a parent, sibling, or child, the amount he or she receives is subject to the tax. This can happen when a spouse beneficiary passes away before the policyholder.

Are you concerned about taxes that may be due on a life insurance policy? Feel free to contact our office with any questions. We are happy to review your options and help you find the best solution based on your individual financial and insurance needs.

Boat Insurance Basics You Need to Know

A spin around the lake or a cruise down the river can be a great way to spend an August afternoon. Just make sure you have the necessary coverage to protect your boat (and your wallet).

The type and amount of boat insurance you need depend on the kind of vessel you own and how you use it. Simple craft such as kayaks, smaller sailboats, and small powerboats may be covered by your homeowners policy. Larger, more powerful vessels such as yachts and Jet Skis require separate coverage.

A boat insurance policy typically covers damage to the boat itself, theft, and general liability. Additional coverage, including protection for trailers and boating accessories, may also be available.

These insurance policies typically offer one of two types of coverage: actual cash value or agreed amount value. Actual cash value pays for the cost of replacement minus the depreciation of the boat. Agreed amount value policies pay the total that you and your insurer have agreed upon as the value of the vessel. Under this coverage, old items are replaced with new without subtracting depreciation.

As a boat owner, you may be eligible for discounts to your insurance premiums. Common discounts include those for multiple policies with the same provider, safety equipment onboard the vessel, and crew’s completion of safety education courses. Remaining claims-free for a certain period of time may also qualify you for a discount.

In addition to obtaining proper insurance, maintain best practices to protect your boat and its passengers. Equip your vessel with proper lighting, an emergency signal (horn, whistle, or bell), and life jackets. Stock your boat with an emergency kit that includes fresh water, a flashlight, a radio, flares, tools, and a first aid kit, and keep a fire extinguisher readily accessible. Lastly, always adhere to marine traffic laws.

Not sure if you have the coverage you need for your boat? Give us a call to review your current coverage and discuss the options available. We’ll make sure you and your vessel are well protected the next time you set sail.

Reduce Their Risk: Safety Tips for Teen Drivers

It’s time for a teen to get their driver’s license. Who is more nervous – the teenager or the parent?

Parent anxiety during this rite of passage is understandable. According to the Insurance Information Institute, motor vehicle accidents are the number one cause of death among those age 15 to 20.

Fortunately, teens and parents can take steps to improve safety on the road. If you have a teen behind the wheel, try these best practices.

Choose a safe car: Sure, your teen will probably prefer to drive that sporty convertible, but giving a teenager the keys to a sleek, fast car will only encourage speeding and other unsafe driving habits. For a teen’s first vehicle, choose a car that is easy to drive and offers solid protection during an accident. Avoid small cars and SUVs, which are prone to rollovers.

Limit their risk: Consider following a graduated driver’s license (GDL) program. These are in place in some states, and parents can institute similar policies in areas where they aren’t required. Under these programs, teens’ driving privileges are restricted until the teen has gained experience behind the wheel. Restrictions may prohibit driving at night or with teen passengers.

Emphasize safe habits: Talk with teens about risky driving behaviors. Explain the dangers involved with distracted driving caused by phone use, radio use, or conversations with passengers. Stress the importance of remaining focused while driving.

Additionally, certain practices, such as enrolling teens in a safe driver program or using electronic devices to monitor their driving, may qualify you for insurance discounts. Contact our office to discuss what programs are available in your area.