There are four basic techniques for managing risk:

• Risk Avoidance - This technique involves the avoidance of exposure to loss; either by not owning specific property that could be exposed to loss; or by not engaging in a specific activity which could create liability.

  Example The ultimate avoidance of being killed in a plane crash is to refuse to fly. The ultimate avoidance of being sued by someone being injured on your trampoline is not to own one.

• Risk Reduction/Loss Management and Control - This technique involves lowering the probability of a particular hazard occurring; and lessening the severity of the hazard by taking some positive action.

  Example A risk reduction strategy for a swimming pool is to install warning alarms on all doors leading to the pool; a risk reduction strategy to prevent home fires would be to refrain from leaving greasy or chemically saturated rags near a gas hot water heater.

• Risk Assumption/Retention - This technique involves the acceptance of the risk. Generally, this technique should be used only when the potential exposure is very small or has a low probability of occurrence. In other words, you should only self-insure what you can afford to lose. Unfortunately, many people self-insure by default. They do not consciously decide to take-on the full risk; they merely fail to plan and provide for an adequate risk management program.

  Example Choosing not to insure a 15-year-old car with a value of less than $1,000 for collision coverage is an example of Risk Assumption.

  Sometimes partial risk retention is used, wherein the person at risk chooses to accept part of the potential liability for a certain hazard.

  Example The selection of an insurance policy (health, auto, or homeowners) with a large deductible would involve partial retention.

• Risk Transfer - This technique almost always involves some form of insurance. The risk of a particular hazard is transferred to another entity (usually an insurance company) in exchange for a payment of premium. This progress also involves the determination by the insurer of whether or not the risk to be assumed is acceptable at the given premium. This process is known as the “underwriting” process.

The first application of Risk Transfer through insurance that we will address is the risk of death. Death always involves a loss, but in its financial sense, a loss due to death is measured in terms of incomplete financial goals and objectives.

How Do I Determine My Potential Financial Loss Due to Death?

Some of the financial needs that may be created by a death are as follows:

• Final personal expenses – final medical expenses, funeral, burial, etc.
• Estate / death expenses – estate settlement costs to include federal and state estate taxes, probate, legal, accounting, appraisal fees, etc.
• Family income – support for surviving spouse and dependent children
• Additional expenses – necessary additional household services, childcare, etc.
• Liquidation of debts – payoff of mortgage, auto loan, credit cards educational loans, etc.
• Special financial needs – care of aging parents, special needs child, or other family member
• Liquidity – emergency fund; necessary immediate cash flow
• Bequests – church, school, family members, friends employees, charities
• Funding of established financial goals – completing college funding; purchase of second home, pay off the mortgage, etc.

There may also be additional financial needs of a business nature such as funding the transfer of an existing business through; or protecting a business from the loss of an owner/key-employee.

How Much Life Insurance Should I Buy?

There are many formulas used in the calculation of life insurance need. The most meaningful methods consider both financial needs created at death and what available resources exist to address these financial needs. You should also remember that your needs will vary at different stages during your life.

The first step is to establish the dollar value of the needs. Some of these may be expressed as lump sums; others as cash flows.

The next step is to identify what available resources may be used to eliminate or reduce the financial shortfall. These resources will vary greatly from family to family, but may include:

• Other sources of income from family members
• Survivor benefits (Social Security, employer-sponsored plans, etc.)
• Assets that may be easily liquidated and used to meet the established needs

Once available resources are applied against the identified needs, the amount of life insurance needed can be calculated. Here is a form that you can use to calculate your life insurance needs.

Once the amount of life insurance needed is determined, the next decision is what kind to purchase.

What Kind of Life Insurance Should I Purchase?

There are several types of life insurance; each with numerous variations. The type of coverage that is best for you depends on a number of factors. First, a brief familiarity with the basic types will be helpful:

Term Insurance

Term is insurance that is purchased for a certain period of time (its “term”). During that term, premiums are paid, and a death benefit will be received, if death occurs. There is no cash value build-up. Premiums on term plans are considerably less expensive than with other plans.

At the end of the term, the insured will be faced with one of several choices, depending on the type of term policy purchased. If the need for insurance still exists, the insured will have to apply to purchase a new term policy; generally requiring evidence of insurability (good health); or may be allowed to continue with the existing plan, but at a considerably higher premium. Term plans are sometimes compared to renting a home. During the time premiums is being paid (“rent”); the insured receives the benefit of coverage. Once the premium period has ceased, the insured must “move” or pay higher “rent”. There is no “equity” (cash value).

The most common types of term insurance are:

• Annual Renewable Term/Regular Term - Death benefit remains level during the term; premiums increase with age; usually annually

• Decreasing Term - Death benefit decreases over the term purchased, with premiums remaining level. At the end of the term, the policy terminates, with no further benefits. This type policy has historically been used as mortgage cancellation insurance, with the death benefit and term co-inciding with the mortgage balance and term.
• Level/Straight Term – Death benefit is level during the term selected (such as 5 years, 10 years, 20 years, etc.). Premiums are level during this period and are usually guaranteed not to increase during the term selected.

Some other plan features to consider are:

• Renewability - Policy may or may not be renewable (able to be continued) at the end of its original term without having to provide evidence of insurability.

• Convertibility - Policy may or may not be eligible for conversion (exchange) for one of the permanent plans offered by the insuring company.

• Re-Entry - Some plans allow the insured to apply at certain times during the life of the policy for lower rates, based on evidence of continued good health.

All of the features could be very important to an insured who may need to extend the term of his/her coverage beyond the original selected period, and may no longer qualify due to health reasons for a new policy.

• Policy is considerably less expensive than permanent cash value plans.
• Policies can be structured to meet specific dollar and timing needs (i.e. a 10 year level term plan to match the maturity of a bank loan).

• Policy is only cost effective during “term” of coverage. If need extends beyond coverage period, premiums can become prohibitively expensive.
• There is no cash value or “equity” in the policy.

Permanent Insurance

Permanent insurance, unlike term, is intended for long term needs. Premiums are generally level (although they may not be guaranteed), and the policy accumulates cash value. Types of permanent plans are:

• Whole Life - This is the oldest form of permanent/cash value life insurance. It features a guaranteed premium; a guaranteed cash value; and a guaranteed death benefit. The cash value earns a minimum guaranteed rate of return, and may also receive dividends or additional interest.
  Advantages of Whole Life Insurance
  • Policy is a permanent plan, so future insurability is guaranteed.
  • Policy costs, and therefore, premiums are guaranteed
  • Death benefit is guaranteed
  • Minimum cash value is guaranteed.
  Disadvantages of Whole Life Insurance
  • There is little flexibility, with respect to premium and death benefit.
  • Cash value accumulation may be at returns lower than other financial investment products.
  • It provides less death benefit per premium dollar than other forms of insurance.
  • Policy cash values may be accessible only by loan or surrender of policy.

• Universal Life - These policies contain two components; insurance costs (which increase with the age of the insured) and the cash value component. Interest is paid on the cash value, with returns being similar to current money market returns. Death benefit may be structured to be level (Option A) or may increase as cash values increase (Option B). All aspects of coverage (pure insurance cost; policy administrative charges; premiums; interest credited to cash accumulation, etc.) are detailed separately and disclosed on an annual policy statement.
  Advantages of Universal Life
  • Policy is a permanent plan, so future insurability is guaranteed.
  • Premiums are generally lower than with some other permanent plans.
  • Policy is very flexible, allowing increases or decreases in death benefit and premium.
  • Policy cash values may be accessed by loan or withdrawal.
  • Lump sum deposits may be made to the policy (within certain limitations).
  • Detailed policy statement disclosure makes it easier to understand actual policy costs and benefits.
  Disadvantages of Universal Life
  • Policy costs may vary throughout the life of the policy (pure insurance and administrative costs) which can cause premiums and/or death benefit to fluctuate.
  • Cash value accumulation will generally not be significant at money-market-equivalent rates.

• Variable/Variable-Universal Life - These policies allow policyholders to make decisions concerning where the cash value portion of premium is invested. Policies generally offer a variety of investment alternatives, to include money market, growth and aggressive growth, income, bond, and specialized options.
  Advantages of Variable Life
  • Policy is a permanent plan, so future insurability is guaranteed.
  • Variable-Universal plans have the same flexibilities and features described above for Universal Plans, relating to premium and cash value availability.
  • Policy cash values have an opportunity to grow at returns comparable to returns experienced in the equivalent market. (ie, stocks, bonds, real estate, etc.)
  Disadvantage of Variable Life
  • Insured assumes full investment risk, and lower than anticipated returns can result in higher premiums, lower death benefits, or both.

How Do I Decide Which Company To Use?

Once the amount of insurance needed, and the type of policy desired is determined, the next decision is the selection of a company. Important considerations are:

• Cost - Costs may vary greatly from company to company, but cheapest is not always the best.

• Comparative Policy Benefits: - The policy provisions, guarantees, historical performance are but a few of the factors which may vary from company to company and should be considered.

• Financial Strength of the Issuing Company - The insurance company’s financial strength and stability as well as its national and local reputation are extremely important. Certain rating services are available to assist in comparing the financial aspects of companies being considered.
  A.M. Best Co. rates the financial strength of insurance companies and the security of holding company's debt and preferred stock.

  Standard and Poor's also provides indepemdent ratings and analysis in a wide variety of financial areas.

  Moody's is another well-recognized provider of credit ratings, research and financial information.

• Availability of Local Professional Service Personnel: You will find the most able assistance with your insurance purchase through a local professional agent/adviser. This individual can help you to analyze your personal situation and determine the amount, coverage type and provisions that will best meet your needs. Remember, there is no one policy that is right for all situations.

  In determining who you will work with, you should inquire as to what professional designations the agent/adviser may hold (CLU/Chartered Life Underwriter; ChFC /Chartered Financial Consultant; or CFP/Certified Financial Planner). You should also consider his/her presence and professional reputation in your local community; his/her ability to communicate with you clearly and accurately; and his/her participation in local, state, and national professional organizations.

What other considerations are there in deciding on a life insurance purchase?

Finally, there are some unique features of life insurance, which make it a very valuable financial planning tool in some situations:

• Death proceeds are received income tax-free (as long as the policy has met statutory requirements).

• The growth of cash value within the life insurance contract grows on a tax-deferred basis. So, no taxes are currently due. This is true so long as the policy remains in force (as long as statutory requirements are met.)

• If the cash value is ultimately withdrawn or the policy is surrendered prior to the death of the insured, the withdrawal is income tax free up to the total basis (premiums paid) of the policy. Thereafter, the gain is taxed as ordinary income.

• Policy loans are a non-taxable event, unless the policy is later surrendered with the loan still outstanding.

• Dividends paid on Whole Life policies are non-taxable, since they are considered a return of premium. (However, any interest paid on dividends left on deposit in the policy is taxable.)

• Death proceeds payable to a named beneficiary do not become part of the estate, and generally are not subject to estate debts but may be subject to estate tax. (See Estate Planning.)

• In most states, creditors are prevented from penetrating accumulated cash values in life insurance policies in the event of lawsuit or bankruptcy.

What Kinds of Medical Plans Are Available?

Medical insurance may be available though your employer on a group basis. These plans are frequently more comprehensive in coverage and more cost-effective than the purchase of individual plans. However, both types of plans may very greatly in structure and cost. They are usually divided into two types:

• Managed Care Plans
• Indemnity Plans

Indemnity Plans (Fee For Service) dominated the medical insurance market for many years. Under this type plan, there is usually full freedom of choice of doctors and facilities, and claims forms must be submitted for each service rendered. There is usually a deductible (amount which insured must pay prior to any benefits being available), ranging from $100 to $2500 annually. After the deductible, there is usually a co-insurance provision, in which the insurer will pay a percentage of the cost (such as 80%); and the insured will pay the remainder (20%). This co-insurance applies up to the stop-loss (dollar amount at which the cost-sharing stops, and the insurer pays the rest of the bill at 100%)

There is one additional consideration here, however, and that is that Indemnity Plan Schedules are based on the concept of URC (“Usual, Reasonable and Customary”).

This potential for "balance billing" and the comparatively high premium cost of Indemnity Plans has limited their use in recent years.

Managed Care Plans emerged as a market alternative in the early 1990s, and represent a large percentage of Medical Plans written today. There are several variations of Managed Care Plans, but in each scenario, there is a level of control upon service to be rendered and the provider/facility that will render the service. Herein lies the trade-off for reduced premium and reduced out-of-pocket cost. Although there are numerous variations, the following represent the basic versions of Managed Care option:

• HMOs (Health Maintenance Organizations) - These organizations may be sponsored by an insurance company or by the actual care providers themselves (doctors, hospitals, etc.) The member pays a monthly fee, and there is also generally a fee ("co-pay") required each time that a service is rendered. These co-pays range from $10 to $20 for routine physician office visits to $100 or more for hospital admissions. All aspects of medical care are usually covered, to include inpatient and outpatient services; maternity; laboratory and diagnostic services; prescriptions; and preventive care (not usually covered in Indemnity plans).

  The often-criticized aspect of HMOs is the limitation on choice of providers. The participant is required to use the HMO’s Network of doctors, hospitals and facilities (except in extreme emergencies) in order to receive benefits. Also, there is usually a "gatekeeper" physician who directs all non-emergency care. Participants must first see this primary care physician ("PCP") who then refers them to an in-network specialist or facility, if necessary. There are no benefits available for care obtained outside the participating network, or if care is sought without the proper PCP referral.

  On the positive side, monthly premiums are lower other than with Indemnity Plans. Also, there are no claim forms to file within an HMO. And, aside from the plan co-pays, there is no deductible or co-insurance expense, which must be paid by the member. Also, there can be no balance billing for in-network services, so out-of -pocket costs can be significantly less than with Indemnity Plans. In applying HMO benefits to the previous example, Mary’s cost would look quite different.

  Example Mary now has an HMO plan that features a $100 per day hospital co-pay and $15 office visit co-pay. If Mary uses a Network doctor and facility for her surgery (2 days in the hospital), her bill will look like this: $8,000.00 Total Bill Mary's Portion HMO Portion   $200 (2 x $100/day) $7800 TOTAL $200 $7800

• PPOs (Preferred Provider Organizations) - Like HMOs, these organizations may be sponsored by an insurance company or by care-providers. But there is somewhat more freedom of choice. Most plans feature benefits both inside and outside the network. Of course, use of the out of network providers results in higher out of pocket costs, through higher co-pays, deductibles or co-insurance.

Long Term Care Insurance

Long Term Care has become an important focus for our nation, due to the aging of America. Citizens aged 85 and older are the fastest-growing segment of our population, and are expected to comprise at least 5% of our total population by the year 2050. Living to advanced ages brings its own problems to include the need for assisted living and changes in life-style.

What Is Long Term Care?

Long term care is assistance-in-living that must be provided for an individual due to illness or injury. This may include full skilled care for the bed-ridden patient, or may only involve some assistance with ADLs (Activities of Daily Living) such as bathing, dressing, toileting, administering medication, etc. These services may be provided in a long term nursing facility; a congregate or assisted-living facility, or even within the patient’s or a family member’s home.

What are The Chances That I Will Need Long Term Care?

Industry studies indicate that 40% of all persons reaching age 65 will enter a nursing home.

How Much Does It Cost?

Costs vary greatly depending on nature of service provided and geographic location. Skilled care (the highest level of care within a long term nursing facility) can cost $4,000 to $6,000 monthly. Other levels of care are somewhat less expensive, but can also cost in excess of $2,000 per month.

Who Pays for the Cost?

The two primary sources of payment for long-term health care are from the recipient’s personal financial resources (40%); and from low-income subsidy programs such as Medicaid (45%) after personal resources have been exhausted. Medicare, Medicare Supplemental Policies and private medical insurance provide very limited, if any, benefits for this type care. For this reason, long-term care policies are becoming an important part of most financial planning strategies. More than 100 insurers are now offering these policies.

Who Needs Long Term Care Insurance?

In general, those with low amounts of accumulated assets (less than $50,000) and low incomes should probably not consider the purchase of long term care insurance. They will be eligible for Medicaid coverage after existing assets are exhausted, and would probably have difficulty paying the policy premiums.

Alternatively, those with significant net worths (i.e., over $1,000,000) and sufficient income flows will probably choose to self-insure, especially if current monthly income would be sufficient to provide for care without the depletion of significant assets.

All others (45 years of age and older) should consider the purchase of long-term care insurance. This issue should be of special to concern to those who may have a family history of lengthy debilitating disease or those who may not have family member to provide and assist with care.

Once the need is identified, and a decision is made to purchase a long-term care policy, the policy must be carefully selected, based on its plan provisions, cost, and applicability to your specific need. Some basic plan provisions are:

How Do Long Term Care Policies Work?

• Type of Care – Some policies pay for nursing home confinement only; others pay for alternative care facilities such as ACLFs (Adult Congregational Living Facilities); Assisted Living Facilities or even care within one’s own home.
• Eligibility Requirements – Policy benefits are usually triggered by inability to perform a certain number of ADLs. Other policies may require the certification of a physician that care is necessary.
• Services Covered – Policies generally cover all three levels of care in a nursing home or other facility (custodial, intermediate, and skilled).
• Daily Benefits – Benefits are usually expressed as a per day benefit (i.e. $100 per day) during confinement to a nursing facility. This amount may be limited further for home health care (i.e. one half of nursing benefit / $50 per day).
• Benefit Duration – Duration of benefits ranges from one year to lifetime.
• Waiting Period – The insured absorbs the cost of care during the waiting period (usually 30 to 100 days). This is the equivalent of a "deductible" on other types of insurance.

• Policy may be renewable under one of these criteria:
  1. Guaranteed Renewable – Coverage will continue as long as premiums are paid; policy cannot be cancelled. This does not guaranteed premium amounts, however. OR
  2. Optionally Renewable – The insurer may cancel the coverage for any reason with appropriate notice.

• Policy may contain other optional benefits such as a rider to protect against inflation, or a provision under which premium will be refunded at some future date if benefits have not been utilized.

All of these policy considerations affect the cost of the policy. Further complicating the purchase decision is the fact that due to federal legislation passed in 1996, long-term care plans are now classified as "Qualified:" or "Non-Qualified". These different designations carry different tax implications for premium payment and benefits. A company may sell one or both types of policy.

As with other types of insurance discussed, the quality of the insuring company, its commitment to this particular type of insurance market, and the agent who assists you in obtaining and monitoring your coverage are very important to its meaningful outcome.

Disability Income Insurance

The odds of becoming disabled are greater at any age than are the odds of dying at that same age; yet many working adults have not made any provision to manage this risk. In many ways, disability is a more expensive risk to manage, since income flow would stop, as in the event of death; but in addition to that, there are usually extra medical and care-giving costs which actually increase the cost of living. Just as with medical insurance, group disability plans may be available to you through your employer, and if so, they may be more cost-effective than purchasing your own individual policy. However, group plans often do not contain definitions and coverage provisions that are as favorable for the insured as are those available with an individual plan.

What are The Chances That I Will Be Disabled?

Insurance industry studies indicate the following comparative odds of becoming disabled vs. dying at a given age:

At Age 27 = 2.7 times greater
At Age 42 = 3.5 times greater
At Age 52 = 2.2 times greater

How Do I Know How Much Disability Insurance I Need To Purchase?

Calculating the amount of disability insurance that may need to be purchased is a process similar to the calculation performed in determining life insurance need. The first step is to determine the amount of income that is required for family support. You may want to inflate this number somewhat to make allowance for potentially higher living expenses in the event of a disability, such as extra help around home; additional medical services, etc.

The second step is to offset this need with any income available from sources other than employment (wages of other family members, rental or investment income, etc.). This calculation will give you a good idea of how much disability insurance you will need to purchase. Most carriers limit coverage to approximately 60% to 65% of pre-disability earnings. Your premiums will be based on your age, sex, occupation, income and the policy provisions you select.

Also, keep in mind that if you are paying your disability premium from your personal resources, when the benefits are paid to you, they will not be taxable. If, however, your employer is paying the premiums on your behalf, benefits will be taxable when received.

How Do I Select A Policy?

As with the other health insurance policies previously discussed, selecting a policy can be somewhat complicated. Some important considerations are as follows:

Definition of Disability - This is very important since it determines under what circumstances your disability claim will be paid:
• Own Occupation - This is the most liberal definition of disability and provides that if you cannot perform the duties of your own occupation (even if you can be gainfully employed at something else), then you are considered disabled and eligible for benefits.

Example If a surgeon injures his/her hand in a sporting activity and can no longer hold a scalpel, and therefore can no longer perform surgery, this surgeon would be considered disabled under an "Own Occupation" definition of disability, even though he/she might be able to consult, to teach, or even to write a best-selling novel.

• Any Occupation - This definition states that if the insured is able to perform any occupation for which he/she is reasonable suited on the basis of education, training, or experience, then benefits are not payable.

Example If our surgeon in the previous example was disabled under a policy with this definition, and if he/she were able to earn a living teaching, consulting, or writing, then the policy would not pay.

Benefit Amount - Benefits may be paid as a flat amount or as a percentage of lost earnings usually no more than 60% to 65%).

Probationary Period - Some policies impose a period (30 days) immediately after policy issue during which no benefits may be paid.

Waiting/Elimination Period - The waiting period represents the deductible or cost-sharing aspect of the policy. And is expressed in terms of how long after the onset of the disability will benefits begin (30 days, 90 days), etc.

Duration of Benefits – the typical benefit periods are 2 years, 5 years, to age 65, or for the lifetime of the insured.

Renewability - Whether or not you will be allowed to renew you policy, and under what terms is a very important provision. Policies may be:

• Guaranteed Renewable – Policy cannot be cancelled except for non-payment of premium and premium can only be adjusted for a class of insureds.
• Non-Cancelable – Policy is not only guaranteed renewable, but premiums cannot be adjusted (generally prior to age 65).

Other Provisions:

• Cost of Living Adjustment (COLA) Riders increase the cost of policy, but provide annual increased benefits while on claim. These increases may or may not be tied to an index.
• Guaranteed Insurability Options provide the opportunity to purchase additional insurance at future dates without evidence of insurability.
• Waiver of Premium provides that no premiums are due during periods of disability.
• Partial or Residual benefits may be paid in some policies if the insured can only perform a portion of his/her duties; or may only perform them on a part-time basis.

In addition to personal income protection, several specialized disability coverages should be considered by the businessperson. These are:

• Business Expense Overhead – These plans cover business expenses such as rent, payroll, utilities, insurance, etc. during a disability
• Key Person Plans – These plans reimburse the business for the loss of a key employee, by providing funding for a temporary replacement or the training of a successor.
• Disability Buy-Out – These plans provide the necessary funds to complete a Buy-Sell Agreement, in the event that the owner/executive is totally disabled.

---

Property and Liability Insurance

The third and final application of Risk Transfer through insurance that we will address relates to the catastrophic losses of real and personal property caused by such hazards as fire, theft, vandalism, storms and the liability of legal actions.

Homeowners Insurance

What Kind of Policy Do I Need To Carry On My Home?

Your home is usually your biggest and most expensive asset, and represents a significant risk of loss, so it is very important that it be adequately insured.

There are four types of Homeowners Policies. HO-1, HO-2, HO-3, and HO-8 are available to resident owners only. HO-4 is for renters, and HO-6 is for condominium owners. Ho-3 is the most complete coverage, and the most frequently-sold policy.

How Are These Policies Structured

All of these policies contain two sections, and sometimes a rider:

• Section I – Property Loss Exposure which covers a loss of any of the following due to a peril stated in the policy:

  1. - Dwelling

  2. - Other Structures

  3. - Personal Property

  4. - Loss of Use

• Section II – Liability Loss Exposure (E) which covers personal liability (lawsuit protection) and Medical Payments to Others (F)
• The Personal Property Floater (PPF) is a rider which provides additional protection for items not adequately covered in a standard homeowners policy, such as furs, jewelry, photography equipment, silverware, art, antiques, musical instruments, and collections
  

Who Is Covered Under This Policy?

• Persons named in the policy and members of their family who are residents of the household, including students and their possessions away at college.)
• Guests of the insured for property losses occurring at the insured house (if the insured wants the coverage to apply.)

What Locations Are Covered?

• In addition to the insured’s residence, property is insured wherever it may be (such as at a neighbor’s house; in a motel room while on vacation, etc.)
• Exceptions: Property kept at second home is subject to reduction to 10% of basic coverage (unless residing there).

On What Is Coverage Based?

Generally coverage on the dwelling includes the amount necessary to repair, rebuild or replace an asset at today’s prices is covered, if the homeowner keeps the home insured for at least 80% of the amount it would cost to rebuild currently, excluding land value. In periods of inflation, you should increase coverage annually to keep up with inflation or purchase an inflation rider, which automatically adjusts coverage for inflation.

Contents may be covered on actual cash value basis, or on a replacement cost basis (also taking depreciation into account.) Full re-imbursement may be available for a higher premium

What Are the Policy Limits?

Generally, coverages B through D are expressed as a percentage of the dwelling (A)

• Other Structures (B) 10%
• Personal Property ( C ) 50%
• Loss of Use (D) 10 - 20%

The minimum policy limit of liability is generally $100,000 and Medical Payments is generally $1,000 per person. These limits may be increased for a slightly higher premium. Most financial advisers recommend a minimum of $300,000 on liability limits for both homeowners and auto policies.

What Will I Have To Pay In the Event of a Claim?

The standard deductible on Section I perils in most states is $250. Higher deductibles are available and will save premium dollars. Deductibles do not apply to the liability and medical payments coverages in Section II.

Are there Other Things I Should Consider In Structuring My Policy?

• It is very important that you keep a complete and current inventory of items covered, to include pictures (video, if possible); and receipts to document cost. This inventory should be kept in a safe place away from the insured premises.
• You may wish to consider purchasing an Inflation Rider that will increase the cost of your policy somewhat, but will keep your coverage at current levels.
• Some covered items will require an additional policy rider in order to be adequately covered, such as your home computer; antiques or art; furs, jewelry and some collectibles.
• Earthquakes and floods are generally excluded from the basic policy. If you live in an area where this occurrence is a possibility, you should seek separate coverage for these perils.

Automobile Insurance

How Are Auto Policies Structured?

State law determines whether auto coverage will be handled on a standard policy basis or the "no-fault" basis.

Under a Standard Policy, there are four sections:

• Section A – Liability Coverage
  This pays for damages for bodily injury and property damage for which you may become legally obligated due to an auto accident.
• Section B – Medical Payments Coverage
  This pays reasonable and necessary medical expenses incurred within three years of auto accident up to policy limits.
• Section C – Uninsured Motorists Coverage
  This coverage is provided to accident victims negligently injured by an uninsured or hit-and-run motorist. The victim is permitted to collect an amount up to the negligent motorist’s limits, had such coverage been in force.
• Section D – Coverage For Physical Damage To Vehicle
  This provision pays for collision damage, regardless of fault. Damages are paid in an amount up to actual cash value (replacement cost less depreciation) of the loss in excess of stated deductible (usually $250 to $500).

Under a No-Fault Policy, the coverage is based on the concept that parties should be promptly reimbursed for economic loss without regard to negligence. Each insured party is compensated by his or her own company. The injured person has limitations placed on his/her legal right to sue the owner or driver of the other car.

What Factors Affect My Auto Premium Rates?

Some of the factors affecting premium are:

• Geographic Location of Coverage ("Rating Territory") - Some geographic locations have worse claims experience than others; therefore, premiums are higher in these areas.
• Use of the Insured Auto – Rates are higher for autos driven to work. Total miles driven may also be considered a risk-increasing factor.
• Personal characteristics of Drivers – Age, sex, marital status all affect premiums. Young drivers are in higher classes than others.
• Type of Auto to be Insured – An auto’s classification as "standard", "intermediate" or "high" performance affects premium. Premiums are also higher on sports vehicles and vehicles with rear engines.
• Driving Record – A driver with traffic tickets, accidents or arrests for DUI will incur higher rates than safe drivers.

Is There Any Way To Lower My Premiums?

Discounts are frequently offered by insurance companies for such items as:

• Safe driving records
• Driver’s Education class completion for younger drivers
• Good Student status for younger drivers
• Safety equipment in car such as airbags, anti-theft devices, etc.
• Non-Smoker and/or Non-Drinker status of driver

Other Property and Liability Issues

The need for various kinds of liability coverage is growing. For individuals this is found in the form of Excess or Umbrella Liability. This coverage is designed to pay and defend liability claims after the limits of underlying liability policies are exhausted. These policies have a separate deductible, and terms and coverages will vary greatly from company to company, although premiums are generally very affordable.

Although you may not consider yourself "rich," a large liability exposure could destroy you financially, and the risk should be taken very seriously.

Other types of liability include Directors’ and Officers’ Liability coverage for those in leadership capacities in business or public service organizations and professional liability for those in certain high vulnerability professions.