Introduction

Providing my staff members a pleasant work atmosphere helps to ensure excellent customer service and marketing of the highest quality insurance products through this insurance agency.

Mission

As an insurance agent, I am personally accountable for providing prompt, accurate, and cost-effective service to our customers.

Insurance agencies cannot exist without clients and customers. It is our goal at this agency to provide each and every client with a quality experience that improves their day. Only by providing added-value service can we meet the needs of our policyholders.

You are expected at all times:

•   To treat everyone with the same respect and courtesy with which you, in turn, would like to be treated.

•   To make service to our customers a top priority.

•   To report to the agent any incident in which a customer treats you in a hostile or abusive manner. You are not expected to endure hostile or abusive language or behavior. You should ask that this behavior stop before you continue the service, or you should refer this situation to the agent.

Sales Purpose

Part of providing exceptional service to our customers is ensuring their insurance needs are met. It is our intention to meet customer needs by marketing and selling our insurance agency products.

About This Manual

This manual is designed to acquaint you with the policies and benefits of this agency.

The policies described in this manual are not intended to create a contract between any staff member and the agent.

This manual is designed to provide general information to all staff members regarding the operation of the agency, the expectations the agency has for its team members, and the benefits the agency provides to the staff members. While broad in scope, this manual will not cover every situation that may occur. It will be the agent’s discretion to make these decisions in a fair and equitable manner.

The practices in this manual are subject to modification. To meet the challenges of the future, I reserve the right, with or without notice, to change, add to, or delete any of the policies, terms, conditions, and language presented in this manual.

If an addition or change is made, a policy statement will be placed in the addendum section until the entire manual is reprinted.

Distribution

All staff members are expected to read this manual. This manual is the property of the agency and is to remain in the office at all times.

Job Description Service Staff

This job description is considered to be a classification and recruiting tool and is not intended to limit the assignment of work.

Job Purpose

To work as an employee of an independent contractor insurance agent assisting in providing quality service to customers and assisting with the agent’s marketing efforts.

Experience and Knowledge

•   Experience in customer service and retail sales desirable.

•   Experience with popular computer software desirable.

•   Knowledge of personal lines insurance products desirable.

Skills/Abilities

•   Ability to learn and apply product and customer knowledge to professionally service and assist in the marketing of agency products.

•   Ability to create and maintain business relationships with prospects and policyholders.

•   Goal oriented: highly motivated and resourceful to achieve results.

•   Strong listening, oral, and written communications skills.

•   Initiative and self-reliance: make decisions in a timely manner and take necessary actions without direction from others.

•   Problem solving ability: apply and balance conceptual and analytical thinking.

•   Ability to pay close attention to detail and accuracy.

•   Proven track record of trustworthiness and dependability.

•   Ability to organize and act on several activities concurrently.

Job Related Training Courses, Licensing, and Programs

Successfully complete all company, state, and federal requirements (licenses) to market and service designated insurance agency products and continue to be licensed in good standing is required.

Duties and Responsibilities

•   Provide prompt, accurate, friendly, cost-effective service by responding to inquiries from existing policyholders and the general public regarding insurance availability, eligibility, coverage, policy changes, transfers, claim submission procedures and status, rates, billing clarification, payment plans and procedures, and make referrals for marketing opportunities as appropriate.

•   Prepare forms, policies, and endorsements when required.

•   Provide service to the public and policyholders in a pleasant and courteous manner.

•   Contact prospects and current policyholders for sales appointments.

•   As directed by the agent, work compliant computer systems to update information in customer databases used by the agent.

•   Meet customer service goals and assist with marketing goals as directed by the agent.

•   Perform other related duties as assigned by the agent.

Job Description Sales Staff

This job description is considered to be a classification and recruiting tool and is not intended to limit the assignment of work.

Job Purpose

To work as an employee of an independent contractor insurance agent assisting the agent in selling and marketing products and services and in providing quality service to customers.

Experience and Knowledge

•   Experience in retail sales, marketing or customer service desirable.

•   Experience with computer software desirable.

•   Knowledge of personal lines insurance products desirable.

Skills/Abilities

•   Ability to learn and apply product, industry and market knowledge to make professional recommendations to prospects and policyholders.

•   Satisfy insurance licensing requirements.

•   Ability to influence others.

•   Ability to create professional business relationships with prospects and policyholders.

•   Strong listening, oral, and written communication skills.

•   Ability to take initiative and act effectively in various circumstances without direction.

•   Self-confidence, a strong work ethic, and a positive attitude.

•   Goal-oriented: highly motivated and resourceful to achieve results.

•   Proven problem-solving ability: apply and balance conceptual and analytical thinking.

•   Proven track record of trustworthiness, dependability, and ethical behavior.

•   Ability to organize and act on several activities concurrently.

Job Related Training Courses, Licensing, and Programs

Successfully complete all company, state, and federal requirements (licenses) to sell and service designated insurance agency products and continue to be licensed in good standing is required.

Duties and Responsibilities

•   Implement the agency’s marketing/sales plan and direct mail campaigns at direction  of the agent.

•   Work from the agent’s office to contact prospects and current policyholders to generate interest in sales appointments.

•   Conduct needs-based sales interviews in the agent’s office supported by technology (including Insurance and Financial Reviews).

•   Provide prompt, accurate, friendly, cost-effective service and utilize it as a basis for establishing a marketing opportunity.

•   Meet marketing goals set by the agent.

•   As directed by the agent, work with compliant computer systems to update information  in customer databases used by the agent.

•   Perform other related duties as assigned by the agent.

 

Best practices for how to handle client inquiries via email or phone?

Step 1: First Call or Email Resolution

Most customer calls and emails can be handled in the first conversation or response. When faced with a difficult situation, our first reaction is to want to put the problem off until later “when we have more time“. This time rarely comes. Whether the call is difficult or easy, we should always attempt to address the concern or request while on the phone with the customer the first time.

If you’re unsure of the answer or need additional assistance, let the client know that you’ll need to place them on a brief hold while you look into their question. If the client is calling with a simple change, take care of it while you’re on the call. This will ensure that the client is still available to discuss what was required if any additional questions or information is needed. 

If you’re not the appropriate person to manage the situation, be sure to do a warm transfer to the right person. Let the person to whom you’re transferring the call know the client’s name, policy information, and a brief description of why you’re transferring the call to them. 

Step 2: Follow Up and Follow Through

In the rare situation that you cannot answer the question or fulfill the need of the client during the first call, you must set a time to reconnect with the client in that call. Remember that while you have multiple calls in a day, your call might be the only one the client has that day.

When you do not set a time to return their call, they might become anxious and reach out to you to ensure they didn’t miss your call. That’s why you must do what you promised the client that you would do. If an exception comes up, such as a delay in underwriting or the dog ate your computer, reach out to the client and give them an update on their request.

Step 3: Fix your Face

This is one of my favorite things to do. Mostly because I have an expressive face! When you’re getting ready to answer the phone, take a deep breath and put a smile on your face. The simple act of smiling or expressing friendly kindness comes through on the phone or in email and can help put the client at ease and change their attitude.

This is critical to consider especially when dealing with a high-stress situation or an angry client. A quick tip is to use your camera (or a mirror) to see what your face looks like while talking to clients. The client can sense when you’re tense, distracted or indifferent and will increase the tension during the call.

When you’re stressed, the client will get more stressed. When you fix your face and remain calm, it’ll make the experience better for the client and for you. 

Step 4: Slow Down to Speed Up

Slow it down. We’re always rushing from task to task, trying to keep up. But when we stop and take a moment to refocus, we can get more done in less time. When a client calls us, we should not treat it as an interruption. It’s an opportunity to build a stronger relationship with the client, solve problems they may not be aware of, and ensure the client feels they’re the only client we have. 

Without clients, we wouldn’t have a job.

People pick independent agents and not call centers because they want to do business with someone they know, like, and trust. By slowing down and taking a few extra moments to talk with the client (not to the client), we build the relationship and make future calls faster because we earned their trust.

A few extra minutes today can save hours over the life of the customer. 

Step 5: Focus on What you Know

We’ve all been blindsided by the most random questions. Take a moment before responding. Rephrase the question if it is unclear or ask the client for more information. If you genuinely don’t know how to answer the question, that’s ok. But, do not make a big deal and lose your confidence.

Focus on what you do know: how to be a fantastic agent. Wow the customer with your service skills. Put them at ease by assuring them that you’re on top of it. Then let them know that you’ll get the answer for them. 

Step 6: Recap

Confirm, Confirm, Confirm. Make sure that what the client has requested is being completed. When you recap the conversation with the insured, it shows that you were listening. This also will help to avoid any misunderstandings. The best calls are two-way conversations. Let them talk, then respond. Don’t forget to follow up with a quick email or text when necessary, but don’t rewrite the entire conversation to try and cover your assets. 

Step 7: Document

If you don’t document the exchange with the client in your management system, the exchange cannot be proven that it ever occurred. Not only do the log notes help in the event of a loss, they prove valuable when servicing the account, in general.

When the client calls in, take a moment to review the last few log lines in the file. Look to see if they’ve had any recent life changes or claims. 

• Did they buy a new home or vehicle? Talk to them about it. People insure the things they care about. 
• What if the policy was recently canceled? Bring it to their attention, this may have been accidental.
• If this is the first time you have talked to the client, you can review notes on pets, hobbies, etc., to make the call feel friendlier. 

Accurately documenting all communications with the client ensures that anyone in the agency can assist if the need arises.  

Insurance Handbook

    Overview                                                                                   1

     Auto Insurance                                                                           3

      Homeowners Insurance                                                              5

     Business Insurance                                                                   10

     Life Insurance                                                                          16

    Annuities                                                                                  19

      Long-Term Care Insurance                                                        22

     Disability Insurance                                                                  24

 

The insurance industry safeguards the assets of its policyholders by transferring risk from an individual or business to an insurance company. Insurance companies act as financial intermediaries in that they invest the premiums they collect for providing this service. Insurance company size is usually measured by net premiums written, that is, premium revenues less amounts paid for reinsurance. There are three main insurance sectors: property/casualty, life/health and health insurance. Property/casualty (P/C) consists mainly of auto, home and commercial insurance. Life/health (L/H) consists mainly of life insurance and annuity products. Health insurance is offered by private health insurance companies and some L/H and P/C insurers, as well as by government programs such as Medicare.

Regulation

All types of insurance are regulated by the states, with each state having its own set of statutes and rules. State insurance departments oversee insurer solvency, market conduct and, to a greater or lesser degree, review and rule on requests for rate increases for coverage. The National Association of Insurance Commissioners develops model rules and regulations for the industry, many of which must be approved by state legislatures. The McCarran-Ferguson Act, passed by Congress in 1945, refers to continued state regulation of the insurance industry as being in the public interest. Under the 1999 Gramm-Leach-Bliley Financial Services Modernization Act, insurance activities—whether conducted by banks, broker-dealers or insurers—are regulated by the states. However, there have been, and continue to be, challenges to state regulation from some segments of the federal government as well as from some financial services firms.

Overview

Accounting

Insurers are required to use statutory accounting principles (SAP) when filing annual financial reports with state regulators and the Internal Revenue Service. SAP, which evolved to enhance the industry’s financial stability, is more conservative than the generally accepted accounting principles (GAAP), established by the independent Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC) requires publicly owned companies to report their financial results using GAAP rules. Insurers outside the United States use standards that differ from SAP and GAAP. As global markets developed, the need for more uniform accounting standards became clear. In 2001 the International Accounting Standards Board (IASB), an independent international accounting standards setting organization, began work on a set of standards, called International Financial Reporting Standards (IFRS) that it hopes will be used around the world. Since 2001 over 100 countries have required or permitted the use of IFRS.

In 2007 the SEC voted to stop requiring non-U.S. companies that use IFRS to re-issue their financial reports for U.S. investors using GAAP. In 2008 the National Association of Insurance Commissioners began to explore ways to move from statutory accounting principles to IFRS. Also in 2008, the FASB and IASB undertook a joint project to develop a common and improved framework for financial reporting.

Distribution

Property/casualty and life insurance policies were once sold almost exclusively by agents—either by captive agents, representing one insurance company, or by independent agents, representing several companies. Insurance companies selling through captive agents and/or by mail, telephone or via the Internet are called “direct writers.” However, the distinctions between direct writers and independent agency companies have been blurring since the 1990s, when insurers began to use multiple channels to reach potential customers. In addition, in the 1980s banks began to explore the possibility of selling insurance through independent agents, usually buying agencies for that purpose. Other distribution channels include sales through professional organizations and through workplaces.

Auto Insurance

Auto Insurance Basics

Auto insurance protects against financial loss in the event of an accident. It is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium and the insurance company agrees to pay losses as defined in the policy.

Auto insurance provides property, liability and medical coverage:

• Property coverage pays for damage to, or theft of, the car.
• Liability coverage pays for the policyholder’s legal responsibility to others for bodily injury or property damage.
• Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

Most states require drivers to have auto liability insurance before they can legally drive a car. (Liability insurance pays the other driver’s medical, car repair and other costs when the policyholder is at fault in an auto accident.) All states have laws that set the minimum amounts of insurance or other financial security drivers have to pay for the harm caused by their negligence behind the wheel if an accident occurs. Most auto policies are for six months to a year. A basic auto insurance policy is comprised of six different kinds of coverage, each of which is priced separately (see below).

1.   Bodily Injury Liability

This coverage applies to injuries that the policyholder and family members listed on the policy cause to someone else. These individuals are also covered when driving other peoples’ cars with permission. As motorists in serious accidents may be sued for large amounts, drivers can opt to buy more than the staterequired minimum to protect personal assets such as homes and savings.

2.   Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.

3.   Property Damage Liability

This coverage pays for damage policyholders (or someone driving the car with their permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures hit in an accident.

Auto Insurance

4.   Collision

This coverage pays for damage to the policyholder’s car resulting from a collision with another car, an object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deductible of $250 to $1,000—the higher the deductible, the lower the premium. Even if policyholders are at fault for an accident, collision coverage will reimburse them for the costs of repairing the car, minus the deductible. If the policyholder is not at fault, the insurance company may try to recover the amount it paid from the other driver’s insurance company, a process known as subrogation. If the company is successful, policyholders will also be reimbursed for the deductible.

5.   Comprehensive

This coverage reimburses for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosions, earthquakes, windstorms, hail, flood, vandalism and riots, or contact with animals such as birds or deer. Comprehensive insurance is usually sold with a $100 to $300 deductible, though policyholders may opt for a higher deductible as a way of lowering their premium. Comprehensive insurance may also reimburse the policyholder if a windshield is cracked or shattered.

Some companies offer separate glass coverage with or without a deductible. States do not require the purchase of collision or comprehensive coverage, but lenders may insist borrowers carry it until a car loan is paid off. It may also be a requirement of some dealerships if a car is leased.

6.   Uninsured and Underinsured Motorist Coverage

Uninsured motorist coverage will reimburse the policyholder, a member of the family or a designated driver if one of them is hit by an uninsured or a hit-andrun driver. Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for the other driver’s total loss. This coverage will also protect a policyholder who is hit while a pedestrian.

 

Homeowners Insurance Basics

Homeowners insurance provides financial protection against disasters. It is a package policy, which means that it covers both damage to property and liability, or legal responsibility, for any injuries and property damage policyholders or their families cause to other people. This includes damage caused by household pets. Damage caused by most disasters is covered but there are exceptions. Standard homeowners policies do not cover flooding, earthquakes or poor maintenance. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. Earthquake coverage is available either in the form of an endorsement or as a separate policy. Most maintenance-related problems are the homeowners’ responsibility.

A standard homeowners insurance policy includes four essential types of coverage. They include:

1.   Coverage for the Structure of the Home

This part of a policy pays to repair or rebuild a home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in the policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. Most standard policies also cover structures that are not attached to a house such as a garage, tool shed or gazebo. Generally, these structures are covered for about 10 percent of the total amount of insurance on the structure of the home.

2.   Coverage for Personal Belongings

Furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 50 to 70 percent of the amount of insurance on the structure of a home. This part of the policy includes off-premises coverage. This means that belongings are covered anywhere in the world, unless the policyholder has decided against off-premises coverage. Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. To insure these items to their full value, individuals can purchase a special personal property endorsement or floater and insure the item for its appraised value.

Trees, plants and shrubs are also covered under standard homeowners insurance—generally up to about $500 per item. Perils covered are theft, fire, lightning, explosion, vandalism, riot and even falling aircraft. They are not covered for damage by wind or disease.

Homeowners Insurance

3.   Liability Protection

Liability coverage protects against the cost of lawsuits for bodily injury or property damage that policyholders or family members cause to other people. It also pays for damage caused by pets. The liability portion of the policy pays for both the cost of defending the policyholder in court and any court awards—up to the limit of the policy. Coverage is not just in the home but extends to anywhere in the world. Liability limits generally start at about $100,000. However, experts recommend that homeowners purchase at least $300,000 worth of protection. An umbrella or excess liability policy, which provides broader coverage, including claims for libel and slander, as well as higher liability limits, can be added to the policy. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.

Homeowners policies also provide no-fault medical coverage. In the event that someone is injured in a policyholder’s home, the injured person can simply submit medical bills to the policyholder’s insurance company. In this way expenses are paid without a liability claim being filed. This coverage, however, does not pay the medical bills for the policyholder’s own family or pets.

4.   Additional Living Expenses

This pays the additional costs of living away from home if a house is inhabitable due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other extra living expenses incurred while the home is being rebuilt. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on a house. The coverage can be increased for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage, but for a limited amount of time.

Additional living expense coverage also reimburses homeowners who rent out part of their home for the rent that would have been collected from a tenant if the home had not been destroyed.

Types of Homeowners Insurance Policies

There are several types of homeowners insurance policies that differ in the amount of insurance coverage they provide. The different types are fairly standard throughout the country. However, individual states and companies may offer policies that are slightly different or go by other names such as “standard” or “deluxe.” People who rent the homes they live in have specific renters policies.

The various types of homeowners insurance policies are listed below.

•   HO-3: This is the most common policy and protects the home from all perils except those specifically excluded.
•   HO-1: Limited coverage policy

This “bare bones” policy provides coverage against the first 10 disasters. It is no longer available in most states.

•   HO-2: Basic policy

A basic policy provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.

•   HO-8: Older home

Designed for older homes, this policy usually reimburses for damage on an actual cash value basis, which means replacement cost less depreciation. Full replacement cost policies may not be available for some older homes.

•   HO4: Renter

Created specifically for people who rent the home they live in, this policy protects personal possessions and any parts of the apartment that the policyholder owns, such as newly installed kitchen cabinets, against all 16 disasters.

•   H0-6: Condo/Co-op

A policy for people who own a condo or co-op, it provides coverage for belongings and the structural parts of the building that they own. It protects against all 16 disasters.

What Type of Disasters Are Covered?

Most homeowners policies cover the 16 disasters listed below. Some “bare bones” policies only cover the first 10:

•   Fire or lightning
•   Windstorm or hail
•   Explosion
•   Riot or civil commotion
•   Damage caused by aircraft
•   Damage caused by vehicles

Homeowners Insurance

•   Smoke
•   Vandalism or malicious mischief
•   Theft
•   Volcanic eruption
•   Falling object
•   Weight of ice, snow or sleet
•   Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
•   Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fireprotective system
•   Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance
•   Sudden and accidental damage from artificially generated electrical current

(does not include loss  to a tube, transistor or similar electronic component)

Standard Homeowners Policy Exclusions

Standard homeowners policies exclude coverage for flood, earthquake, war, nuclear accident, landslide, mudslide, sinkhole. Some of these exclusions are discussed below.

1.   Floods

Flood damage is excluded under standard homeowners and renters insurance policies. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. Additional information on flood insurance can be found on the FloodSmart.gov Web site or by calling 888-379-9531. For coverage over and above the $250,000 limit for property and $100,000 for contents provided by the NFIP, excess flood insurance is available from private insurance companies. (See Topic on Flood

Insurance on page 47 for further information.)

Tsunamis cause flood damage and are therefore only covered by a flood policy.

2.   Earthquakes

Earthquake coverage can be a separate policy or an endorsement to a homeowners or renters policy. It is available from most insurance companies. In California, it is also available from the California Earthquake Authority, a privately funded, publically managed organization. In earthquake prone states like California, the policy comes with a high deductible.

3.   Damage Resulting from “Faulty, Defective or Inadequate” Maintenance, Workmanship, Construction or Materials

Defective products can include construction materials.  An insurance policy will not cover damage due to lack of maintenance, mold, termite infestation and infestation from other pests. It is the policyholder’s responsibility to take reasonable precautions to protect the home from damage.

Levels of Coverage

There are three coverage options.

1.   Actual Cash Value

This type of coverage pays to replace the home or possessions minus a deduction for depreciation.

2.   Replacement Cost

This type of coverage pays the cost of rebuilding or repairing the home or replacing possessions without a deduction for depreciation.

3.   Guaranteed/Extended Replacement Cost

An extended replacement cost policy pays a certain percentage, generally 20-25 percent, over the coverage limit to rebuild the home in the event that materials and labor costs are pushed up by a widespread disaster, for example. For example, if homeowners take out a policy for $100,000, they can get up to an extra $20,000 or $25,000 of coverage.

Some companies offer a guaranteed replacement cost policy, which pays whatever it costs to rebuild the home as it was before the fire or other disaster, even if it exceeds the policy limit. This gives protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster or other unexpected situations. It generally does not cover the cost of upgrading the house to comply with current building codes. However, an endorsement (or an addition to) the policy called Ordinance or Law can help pay for these additional costs.

Guaranteed and extended replacement cost policies are more expensive; but can offer excellent financial protection against disasters. This type of coverage, however, may not be available in all states or from all companies.

 

Business Insurance Basics

Most businesses need to purchase at least the following four types of insurance:

1. Property Insurance

Property insurance compensates a business if the property used in the business is lost or damaged as the result of various types of common perils, such as fire or theft. Property insurance covers not just a building or structure but also the contents, including office furnishings, inventory, raw materials, machinery, computers and other items vital to a business’s operations. Depending on the type of policy, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses.

Business Interruption Insurance

Also known as business income insurance, business interruption insurance is a type of property insurance. A business whose property has sustained a direct physical loss such as fire damage or a damaged roof due to a tree falling on it in a windstorm and has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential. That is why business interruption insurance is so important.

There are typically three types of business interruption insurance. A business can purchase any one or combination of these.

•   Business  Income  Coverage:      Compensates for lost income if a company has to vacate its premises due to disaster-related damage that is covered under the property insurance policy. Business income insurance covers the profits the company would have earned, based on financial records, had the disaster not occurred. The policy also covers operating expenses, such as electricity, that continue even though business activities have come to a temporary halt.
•   Extra      Income  Coverage: Reimburses the company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period.
•   Contingent   Business Interruption   Insurance: Protects a businessowner’s earnings following physical loss or damage to the property of the insured’s suppliers or customers, as opposed to its own property.

Damage due to floods, earthquakes and acts of terrorism are generally not  covered by standard business property insurance but can be purchased through various markets.

Protection Against Flood Damage

Property insurance policies usually exclude coverage for flood damage. Businesses should find out from their local government office or commercial bank whether their business is located in a flood zone and whether their location has been flooded in the past. Flood insurance is available through the federal government’s National Flood Insurance Program (www.FloodSmart.gov), which is serviced by private carriers, and from a few specialty insurers.

Protection Against Earthquake Damage

Coverage for earthquake damage is excluded in most property insurance policies, including businessowners package policies. Businesses in an earthquakeprone area will need a special earthquake insurance policy or commercial property earthquake endorsement.

Protection Against Terrorist Attack Losses

Under the Terrorism Risk Insurance Act of 2002 and its extensions, only businesses that purchase optional terrorism coverage are covered for losses arising from terrorist acts. The exception is workers compensation, which covers workrelated injuries and deaths including those due to acts of terrorism.

2. Liability Insurance

Any enterprise can be sued. Customers may claim that the business caused them harm as the result of, for example, a defective product, an error in a service or disregard for another person’s property. Or a claimant may allege that the business created a hazardous environment. Liability insurance pays damages for which the business is found liable, up to the policy limits, as well as attorneys’ fees and other legal defense expenses. It also pays the medical bills of any people injured by, or on the premises of, the business.

A Commercial General Liability (CGL) insurance policy is the first line of defense against many common claims. CGL policies cover claims in four basic categories of business liability:

•   Bodily injury
•   Property damage
•   Personal injury (including slander or libel)
•   Advertising injury (damage from slander or false advertising)

In addition to covering claims listed above, CGL policies also cover the cost of defending or settling claims. General liability insurance policies always state the maximum amount that the insurer will pay during the policy period.

There are two major forms of liability insurance policies a business can select: occurrence and claims made. Both types of policies have their advantages.

•   Occurrence  Policy: An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed. For example, a person might sue a business in 2010 for an injury stemming from a fall in 1999. The policy that was in place when the incident occurred (i.e. 1999) will apply, even if the company now has a policy in place with higher limits. Occurrence coverage may not be available in some states or for some industries or professions.
•   Claims    Made Policy:   A claims made policy covers the business based on the policy that is in force when the claim is made, regardless of when the incident occurred. In the above example, the limits in the policy in effect in 2010 would apply. Businesses with claims made policies can purchase optional “tail coverage.” Tail coverage enables a business to report claims after the policy has ended for alleged injuries that occurred while the policy was in effect.

3. Commercial Vehicle Insurance

A commercial auto policy provides coverage for vehicles that are used primarily in connection with commercial establishments or business activities. The insurance pays any costs to third parties resulting from bodily injury or property damage for which the business is legally liable up to the policy limits. 

While the major coverages are the same, commercial auto policies differs from a personal auto policy in a number of technical respects. They may have higher limits and/or provisions that cover rented and other non-owned vehicles, including employees’ cars driven for company business. Several insurers offer business auto policies geared to owners of small businesses or specific types of businesses.

4. Workers Compensation Insurance

Employers have a legal responsibility to their employees to make the workplace safe. However, despite precautions, accidents can occur. To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents, in almost every state businesses are required by law to buy workers compensation insurance. Workers compensation insurance covers workers injured on the job, whether they are hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses. Workers compensation provides payments to injured workers, without regard to who was at fault in the accident, for time lost from work and for medical and rehabilitation services. It also provides death benefits to surviving spouses and dependents. Each state has different laws governing the amount and duration of lost income benefits, the provision of medical and rehabilitation services and how the system is administered. For example, in most states there are regulations that cover whether the worker or employer can choose the doctor who treats the injuries and how disputes about benefits are resolved.

Workers compensation insurance must be bought as a separate policy. In-home business and businessowners policies (BOPs) are sold as package policies but do not include coverage for workers’ injuries.

Other Types of Business Coverages

The first four coverages discussed below are different types of liability insurance policies available to businesses. The fifth is a form of life insurance. There are also specialized liability policies geared to specific types of businesses.

1.   Errors and Omissions Insurance/Professional Liability

Some businesses involve services such as giving advice, making recommendations, designing things, providing physical care or representing the needs of others, which can lead to being sued by customers, clients or patients claiming that the business’ failure to perform a job properly has injured them. Errors and omissions or professional liability insurance covers these situations. The policy will pay any judgment for which the insured is legally liable, up to the policy limit. It also provides legal defense costs, even when there has been no wrongdoing.

2.   Employment Practices Liability Insurance

Employment practices liability insurance covers, up to the policy limits, damages for which an employer is legally liable such as violating an employee’s civil or other legal rights. In addition to paying a judgment for which the insured is liable, it also provides legal defense costs, which can be substantial even when there has been no wrongdoing.

3.   Directors and Officers Liability Insurance

Directors and officers liability insurance protects directors and officers of corporations or nonprofit organizations if there is a lawsuit claiming they managed the business or organization without proper regard for the rights of others. The policy will pay any judgment for which the insured is legally liable, up to the policy limit. It also provides for legal defense costs, even where there has been no wrongdoing.

4.   Umbrella or Excess Policies

As the name implies, an umbrella liability policy provides coverage over and above a business’s other liability coverages. It is designed to protect against unusually high losses, providing protection when the policy limits of one of the underlying policies have been used up. For a typical business, an umbrella policy would provide protection beyond Its general liability and auto liability policies. If a company has employment practices liability insurance, directors and officers liability, or other types of liability insurance, the umbrella could provide protection beyond those policy limits as well. Cost depends on the nature of the business, its size, the type of risks the business faces and the ways the business implements risk reduction.

5.   Key Person Life Insurance

The loss of a key person can be a major blow to a small business if that person is the founder of the business or is the key contact for customers and suppliers and the management of the business. Loss of the key person may also make the running of the business less efficient and result in a loss of capital. Losses caused by the death of a key employee are insurable. Such policies compensate the business against significant losses that result from that person’s death or disability. The amount and cost of insurance needed for a particular business depends on the situation and the age, health and role of the key employee. Key employee life insurance pays a death benefit to the company when the key employee dies. The policy is normally owned by the company, which pays the premiums and is the beneficiary. The monies from key person insurance can be used to buy back shares in a company from the estate of the deceased, pay a head hunting firm to find a suitable replacement and cover costs or expenses while the business adjusts to the loss.

Package Policies

Commercial insurers sell coverages separately and/or offer policies that combine protection from most major property and liability risks in one package. Package policies are created for types of businesses that generally face the same kind and degree of risk.

1.   Packages for Small Businesses

Smaller companies often purchase a package policy known as the Businessowners Policy, or BOP. A BOP is recommended for most small businesses (usually 100 employees or less), as it is often the most affordable way to obtain broad coverage. BOPs are “off the shelf” policies combining many of the basic coverages needed by a typical small business into a standard package at a premium that is generally less than would be required to purchase these coverages separately. Combining both property and liability insurance, a BOP will cover a business in the event of property damage, suspended operations, lawsuits resulting from bodily injury or property damage to others, etc. BOPs do not cover professional liability, auto insurance, workers compensation or health and disability insurance. Small businesses will need separate insurance policies to cover professional services, vehicles and employees.

2.   Commercial Multiple Peril Policies

Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face. Commercial multiple peril policies, often purchased by corporations, bundle property, boiler and machinery, crime and general liability coverage together. Larger firms employee a risk manager to help determine the company’s exposure to certain risks.

3.   In-Home Business Policies

There are several insurance options designed to address the special needs of home businesses.

•   Homeowners Policy Endorsement: Homeowners may be able to add a simple endorsement or rider to their existing homeowners policy to increase coverage.
•   In-Home  Business Policy:   An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowners policy endorsement. Many insurance companies offer insurance policies specifically tailored to small business.
•   Businessowners     Policy (BOP): The home business might be eligible for The Businessowners Policy (BOP), see above. The key to whether a business owner is eligible for a BOP is the size of the premises, the limits of liability required, the type of commercial operation it is and the extent of its off-premises servicing and processing activities. A BOP, like an in-home business policy, covers business property and equipment, loss of income, extra expense and liability; however, the BOP provides these coverages on a much broader scale.

 

Life Insurance

Life Insurance Basics

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations:

1.   Replace Income for Dependents

If people depend on an individual’s income, life insurance can replace that income if the person dies. The most common example of this is parents with young children. Insurance to replace income can be especially useful if the  government- or employer-sponsored benefits of the surviving spouse or  domestic partner will be reduced after he or she dies.

2.   Pay Final Expenses

Life insurance can pay funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.

3.   Create an Inheritance for Heirs

Even those with no other assets to pass on, can create an inheritance by buying a life insurance policy and naming their heirs as beneficiaries.

4.   Pay Federal “Death” Taxes and State “Death” Taxes

Life insurance benefits can pay for estate taxes so that heirs will not have to liquidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules through January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level estate taxes.

5.   Make Significant Charitable Contributions

By making a charity the beneficiary of their life insurance policies, individuals can make a much larger contribution than if they donated the cash equivalent of the policy’s premiums.

6.   Create a Source of Savings

Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

Life Insurance

Types of Life Insurance

There are two major types of life insurance: term and whole life.

1.   Term Life

Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions. There are two basic types of term life insurance policies: level term and decreasing term. Level term means that the death benefit stays the same throughout the duration of the policy. Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.

2.   Whole Life/Permanent Life

Whole life or permanent insurance pays a death benefit whenever the policyholder dies. There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company keeps the premium level by charging a premium that, in the early years, is higher than what is needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy. In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product: universal life insurance and variable universal life insurance.

Some varieties of whole life/permanent life insurance are discussed below.

•   Universal Life: Universal life, also known as adjustable life, allows more flexibility than traditional whole life policies. The savings vehicle (called a cash value account) generally earns a money market rate of interest. After money has accumulated in the account, the policyholder will also have the option of altering premium payments—providing there is enough money in the account to cover the costs.

Life Insurance

•   Variable  Life: Variable life policies combine death protection with a savings account that can be invested in stocks, bonds and money market mutual funds. The value of the policy may grow more quickly, but involves more risk. If investments do not perform well, the cash value and death benefit may decrease. Some policies, however, guarantee that the death  benefit will not fall below a minimum level.
•   Variable  Universal       Life: This type of policy combines the features of variable and universal life policies, including the investment risks and rewards characteristic of variable life insurance and the ability to adjust  premiums and the death benefit that is characteristic of universal life  insurance.
  
  

Annuities

Annuities Basics

Annuities are financial products intended to enhance retirement security. An annuity is an agreement for one person or organization to pay another a series of payments. Usually the term “annuity” relates to a contract between an individual and a life insurance company.

There are many categories of annuities. They can be classified by:

•   Nature     of     the    underlying     investment:    fixed or variable
•   Primary   purpose: accumulation or pay-out (deferred or immediate)
•   Nature     of     payout   commitment:  fixed period, fixed amount or lifetime
•   Tax status:   qualified or nonqualified
•   Premium payment arrangement: single premium or flexible premium

An annuity can be classified in several of these categories at once. For example, an individual might buy a nonqualified single premium deferred variable annuity. In general, annuities have the following features:

1.   Tax Deferral on Investment Earnings

Many investments are taxed year by year, but the investment earnings—capital gains and investment income—in annuities are not taxable until the investor withdraws money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs.

2.   Protection from Creditors

People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities.

3.   A Variety of Investment Options

Many annuity companies offer an array of investment options. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. In recent years, annuity companies have created various types of “floors” that limit the extent of investment decline from an increasing reference point.

Annuities

4.   Taxfree Transfers Among Investment Options

In contrast to mutual funds and other investments made with aftertax money, with annuities there are no tax consequences if owners change how their funds are invested. This can be particularly valuable if they are using a strategy called “rebalancing,” which is recommended by many financial advisors. Under rebalancing, investors shift their investments periodically to return them to the proportions that represent the risk/return combination most appropriate for the investor’s situation.

5.   Lifetime Income

A lifetime immediate annuity converts an investment into a stream of payments that last until the annuity owner dies. In concept, the payments come from three “pockets”: The original investment, investment earnings and money from a pool of people in the investors group who do not live as long as actuarial tables forecast. The pooling is unique to annuities, and it is what enables annuity companies to be able to guarantee a lifetime income.

6. Benefits to Heirs

There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. To prevent this situation individuals can buy a “guaranteed period” with the immediate annuity. A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when the owner started receiving the annuity payments). Moreover, annuity benefits that pass to beneficiaries do not go through probate and are not governed by the annuity owner’s will.

Types of Annuities

There are two major types of annuities: fixed and variable. Fixed annuities guarantee the principal and a minimum rate of interest. Generally, interest credited and payments made from a fixed annuity are based on rates declared by the company, which can change only yearly. Fixed annuities are considered “general account” assets. In contrast, variable annuity account values and payments are based on the performance of a separate investment portfolio, thus their value may fluctuate daily. Variable annuities are considered “separate account” assets.

There are a variety of fixed annuities and variable annuities. One example, the equity indexed annuity, is a hybrid of the features of fixed and variable

Annuities

annuities. It credits a minimum rate of interest, just as other fixed annuities do, but its value is also based on the performance of a specified stock index—usually computed as a fraction of that index’s total return. In December 2008 the Securities and Exchange Commission voted to reclassify indexed annuities (with some exceptions) as securities, not insurance products. Annuities can also be classified by marketing channel, in other words whether they are sold to groups or individuals.

Annuities can be deferred or immediate. Deferred annuities generally accumulate assets over a long period of time, with withdrawals usually as a single sum or as an income payment beginning at retirement. Immediate annuities allow purchasers to convert a lump sum payment into a stream of income that the policyholder begins to receive right away.

Long-Term Care Insurance

Long-Term Care Insurance Basics

Long-term care insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease.

Features of Long-Term Care Policies

The best policies pay for care in a nursing home, assisted living facility, or at home. Benefits are typically expressed in daily amounts, with a lifetime maximum. Some policies pay half as much per day for at-home care as for nursing home care. Others pay the same amount, or have a “pool of benefits” that can be used as needed.

Criteria for the Beginning of Payments

The policy should state the various conditions that must be met. They can include:

1.   The Inability to Perform Two or Three Specific “Activities of Daily Living” Without Help

These include bathing, dressing, eating, toileting and “transferring” or being able to move from place to place or between a bed and a chair.

2.   Cognitive Impairment

Most policies cover stroke and Alzheimer’s and Parkinson’s disease, but other forms of mental incapacity may be excluded.

3.   Medical Necessity or Certification by a Doctor that Long-Term Care is Necessary

Most policies have a “waiting period” or “elimination” period. This is a period that begins when an individual first needs long-term care and lasts as long as the policy provides. During the waiting period, the policy will not pay benefits. The policy pays only for expenses that occur after the waiting period is over, if the policyholder continues to need care. In general, the longer the waiting period, the lower the premium for the long-term care policy.

Benefit periods for long-term care may range from two years to a lifetime. Premiums can be kept down by electing coverage for three to four years—longer than the average nursing home stay—instead of a lifetime.

Most long-term care policies pay on a reimbursement (or expense-incurred) basis, up to the policy limits. In other words, if the policy has a $150 per day benefit, but the policyholder spends only $130 per day for a home long-term care provider, the policy will pay only $130. The “extra” $20 each day will, in

Long-Term Care Insurance

some policies, go into a “pool” of unused funds that can be used to extend the length of time for which the policy will pay benefits. Other policies pay on an indemnity basis. Using the same example as above, an indemnity policy would pay $150 per day as long as the insured needs and receives long-term care services, regardless of the actual outlay.

Inflation protection is an important feature, especially for people under the age of 65, who are buying benefits that they may not use for 20 years or more. A good inflation provision compounds benefits at 5 percent a year. Without inflation protection, even 3 percent annual inflation will, over 24 years, reduce the purchasing power of a $150 daily benefit to the equivalent of $75.

Six Other Important Policy Provisions

1.   Elimination Period

Under some policies, if the insured has qualifying long-term care expenses  on one day during a seven-day period, he or she will be credited with having satisfied seven days toward the elimination period: i.e., the time between an injury and the receipt of payments. This type of provision reflects the way  home care is often delivered—some days by professionals and some days by family members.

2.   Guaranteed Renewable Policies

These must be renewed by the insurance company, although premiums can go up if they are increased for an entire class of policyholders.

3.   Waiver of Premium

This provision ensures that no further premiums are due once the policyholder starts to receive benefits.

4.   Third-Party Notification

This provision stipulates that a relative, friend or professional adviser will be notified if the policyholder forgets to pay a premium.

5.   Nonforfeiture Benefits

These benefits keep a lesser amount of insurance in force if the policyholder lets the coverage lapse. This provision is required by some states.

6.   Restoration of Benefits

This provision ensures that maximum benefits are put back in place if the policyholder receives benefits for a time, then recovers and goes for a specified period (typically six months) without receiving benefits.