Grant's Blog

My blogs tend to be about what I am working on or helping with durring the week. 
Insurance topics, Salesmanship Systems to help with your business are just a few topics. 

Top 10 Ways To Prepare For Retirement

02/25/2010 07:08 PM

1.    Know Your Retirement NeedsRetirement is expensive. Experts estimate that you’ll need about 70 percent of your pre-retirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working. Take charge of your financial future.  2.    Find Out About Your Social Security Benefits Social Security pays the average retiree about 40 percent of pre-retirement earnings. Call the Social Security Administration at (800)772.1213 for a free Social Security Statement and find out more about your benefits at www.socialsecurity.gov.  3.    Learn About Your Employer's Pension or Profit Sharing Plan If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement if you request one. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse’s plan. For a free booklet about protecting your pension, see What You Should Know about Your Retirement Plan. 4.    Contribute to a Tax-Sheltered Savings Plan If your employer offers a tax-sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. 5.    Ask Your Employer to Start a Plan If your employer doesn’t offer a retirement plan, suggest that it start one. Simplified plans can be set up by certain employers. Read about IRAs on the IRS Web site.  6.    Put Your Money Into an Individual Retirement Account You can put up to $5,000 a year ($6,000 if you are age 50 or older) into an Individual Retirement Account (IRA) and gain tax advantages. The chart below illustrates the way your account can grow in an IRA. When you open an IRA, you have two options – a traditional IRA or the newer Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, you should know that the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. 7.    Don't Touch Your Savings Don’t dip into your retirement savings. You’ll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer’s retirement plan. 8.    Start Now, Set Goals, and Stick to Them

Start early. The sooner you start saving, the more time your money has to grow. Put time on your side. Make retirement savings a high priority. Devise a plan, stick to it, and set goals for yourself. Remember, it’s never too early or too late to start saving. So start now, whatever your age!

A Place to Put Your Nest Egg Free of Market Risk?

A fixed Annuity!  Call Me to Discuss.... 888-991-2929

All About Business Insurance 89 pages

01/20/2010 06:12 PM

INTRODUCTION

It’s risky to be in business these days. Business owners face fierce competition, random economic swings and strict government regulations. Besides that, unexpected disasters can hit a potentially successful business. Take these examples:

• Fire at a drycleaner. No insurance to pay for customer goods. 
• A roof collapse at a toy store one month before Christmas. No insurance to re-open.
• Insurance on a fire-destroyed building. No insurance to cover pollution cleanup costs.

That’s why loss prevention is a crucial part of insurance. Loss prevention means protecting your assets with practical safeguards. That could include:

• better door locks
• training employees on sexual harassment policies
• Construction of a fire- and earthquake-proof building.

These and similar loss prevention activities can mean reduced insurance premiums for you.  Establishing a close partnership with your insurance agent is the best way to ensure that you’re fully protected .

Your agent can provide the best and most customized protection for disaster coverage. Know the insurance coverage options for your business. It takes time and premiums, but it’s worth the peace of mind—even if you never file a claim.

 

COMMERCIAL PROPERTY INSURANCE

hances are, your business has either a Commercial Package Policy or a Business owners Policy. The Business owners Policy, or BOP, is a package policy designed for businesses of a simpler nature. Let’s look at what makes up package policies first.

Commercial Package Policies—The Inside Story

A package in insurance lingo combines types of insurance in one policy. It takes at least two coverage forms to make a package policy. A coverage form details your insurance protection. Individual coverage forms may have additional conditions, or coverage limits.

So for a business, a package policy could mean one of each of these coverage’s:

• property damage
• liability against lawsuits
• crime
• Machinery.

Monoline (one line of coverage) insurance policies are not uncommon; of course package policy discounts don’t apply to these. Today most businesses opt for the premium savings and more complete coverage of a package policy.

A Commercial Package Policy has a policy jacket that contains:

• general material common to all policies
• Declarations pages (often called “dec” pages)
• various, specific coverage forms.

Some coverage forms you might see depending on your business needs are:

• commercial property

• boiler and machinery
• commercial automobile
• general liability
• inland marine
• farm
• liquor liability
• pollution liability
• products/completed operations liability
• employment practices or employment-related practices liability.

Your agent’s goal is to help you understand and accept the coverage essential for your operations.

Declarations

The Declarations pages personalize the insurance for you and your business. If any of the information on the Declarations pages is wrong, you may face disastrous consequences in the event of a loss. When you receive a new insurance policy or a renewal policy, your first priority is to review the new Declarations. Are all your business entities named correctly? Are the coverages and limits you agreed to listed as expected? This review is not a big job, but it is an important one.

* Tip. Always review your Declarations pages.

Insuring Agreement

Simply, the insuring agreement limits coverage to direct loss to property.

Exclusions & Endorsements

Each coverage form in a package policy will have its own exclusions and perhaps one or more endorsements.

• Exclusions help set parameters on the coverage granted by the insuring agreements set out in the form.

• Exclusions are added to make a policy better fit certain insureds.
• Endorsements are additions to the policy.

You must take into account each part of the policy to understand the whole package. Just as it takes many parts to run the engine in a car, all the parts of an insurance policy must work together, too.

A Quick Review

• Package policies contain Declarations, Insuring Agreements, Exclusions, Endorsements, and Conditions. Each line of insurance has a separate form.

• The policy parts work in unison to provide coverage.

• Premiums are often discounted for package policies.

Beware, insurance terminology changes over time! Also, insurance companies add their own policy names. Why? It makes their product sound sexier. We’ll stick with common terminology as much as possible.

Property Protection: Nuts & Bolts

Have you heard an agent talk about a standard insurance policy? That means a product of the Insurance Services Office (ISO). The ISO develops and revises the insurance policy forms most insurance companies use. Not every insurer uses ISO forms; some use modified ISO forms. Individual states may call for altered variations of ISO or special endorsement forms. Let your agent sift the industry offerings to find the coverage best for you. We’ll stay with the standard ISO forms here.

Building & Personal Property Form: What It Means

The most commonly used form for property protection today is ISO’s Building and Personal Property Form (CP 00 10).

. Note. It’s usually combined with one or more causes of loss forms. These come in three flavors: basic, broad, and special. The first two are named peril forms—a grouping of perils such as fire, windstorm, and vandalism. The special is an open peril form—everything is covered except what is excluded.

* Tip. Look at your entire policy to determine your coverage.

The Building and Personal Property Form:

• Contains the Insuring Agreement. Indirect losses, like the interruption of your business, can be covered. You can imagine that an interruption of your business could be a greater loss than direct property damage (more on this later)!

• Distinguishes between buildings and business personal property. Logic is used here, not strict legal definitions. For example, building coverage can include permanently affixed items and equipment used for building maintenance. This may not seem important, but imagine you’re a landlord. You’d want your snowblower or lawnmower covered in building limits.
• Calls attention to coverage for other people’s property. If your business deals with the property of others—as do laundries, equipment repairs or storage—you’ll want separate bailee coverage.

. Note. Some insureds will have only business personal property. Others will have only real estate. Others will have both. That’s why the insurance policy has separate dollar limits of coverage. It’s important to know how property is classified.

Property Not Covered

The Building and Property Form has a long list of property not covered. Is this a rip-off? No. It’s just good economics – and saves you money! Most of this list reflects risks that not all insureds have and other forms of insurance can cover. So, for instance, autos held for sale are excluded. Good thing because your premiums won’t be affected by losses to this type of property. Those in auto sales can obtain insurance specifically fitted to their risks.

Curious about property not covered? Whip out your policy and check the list. Among items not covered:

• vehicles licensed for use on public roads
• animals
• money
• other items that can be covered by other forms of insurance.

We’ll get to other available insurance coverage soon.

Additional Property Coverages

The Building and Personal Property form provides five additional coverages. These apply no matter which causes of loss form is used in the package. They are:

1. debris removal
2. preservation of property
3. fire department service charges
4. pollutant clean up and removal
5. increased cost of construction.

Two key facts about these additional coverages are:

• Each are designed to meet the average commercial insured’s needs. Your particular business may need more dollar protection in one or more of these areas.

• Each relates to losses arising from a covered peril, not to building or personal property value.

Remember the massive cleanup of the World Trade Center? That shows the importance of debris removal and pollutant cleanup coverage. What happens when you have to remove property in the face of an insured threat or disaster and store it elsewhere? Preservation of property coverage reimburses you for that.

. Note. Until a few decades ago, insurance was sold only on the basis of Actual Cash Value (ACV) reimbursement. ACV means losses are paid at current market cost—in other words, original value less depreciation. This makes it hard on a business forced to replace property. Today you can choose between ACV and a Replacement Cost Option (RCO) (cost to repair or replace).

The Last Additional Coverage

With that note on recovery in mind, the increased cost of construction coverage makes sense. If you have RCO on your policy, this pays for the higher cost to rebuild (costs usually go up because of new ordinances or laws. For example, new building codes not in effect when the building was built might require sprinklers or safety glass in windows).

* Tip. Remember, none of these five coverages are as simple as set out here. You are urged to brush the dust off your policy! Read it. Understand it. And review it with your agent – your trusted advisor.

Coverage Extensions: A Brief Look

The Commercial Package Policy allows you to extend coverage to property not regularly covered under the policy. You are saying to the insurance company, I want these specific situations covered in the event of a loss. Each coverage extension has its own details of coverage. The nuances of the extensions come into play when a loss occurs and there’s no specific insurance written on the property.

The six coverage extensions are:

1. Newly acquired or constructed property. This includes both buildings and business personal property subject to maximum dollar limits each. This extension protects your business if new property is added during the policy period.

* Tip. Always report changes to your business or real property.

When your business personal or real property changes, always report it to your agent. If it’s a change to either coverage extensions or the business organizational structure, report it. This includes a new partner, the change to a corporation, or a new line of operation.

. Note. Don’t assume a change is covered by your insurance. That’s dangerous.

1. Personal effects of people involved in your business
2. Research to restore valuable papers and records
3. Property off-premises temporally for storage or for shows.
4. Outdoor property such as fences, signs, and plants
5. Non-owned detached trailers

. Note. These six categories of coverage extensions are a great deal more complex than we’ll go into here. Check with your insurance agent for complete details.

HAPPINESS IS A BOP

lmost everyone knows about Homeowners and Personal Auto policies. The success with these policies spurred the development of a similar package policy: the Businessowners Policy (BOP). This policy is intended for main street businesses. The BOP combines building, personal property, and liability coverage with other attractive options. Every BOP package must have a set of Policy Conditions. We’ll review those conditions later.

As mentioned before, the Insurance Services Office forms are as close to a standard or benchmark policy as there is in the United States. The ISO also standardizes the BOP, although you may have a BOP with different provisions.

Are You Eligible for a BOP?

The two keys to BOP eligibility are type of business and square footage. General examples:

• apartment buildings
• office buildings
• buildings used primarily for mercantile, service or processing purposes
• wholesalers
• contractors
• mixed use, e.g., stores in an apartment building.

Square footage guidelines can relate to overall building space or a business’s rental space. Generally, the cutoff for BOP eligibility is 25,000 square feet; however, this varies between insurance companies.     

One Size Package Policy Fits All?

Fitting an insurance policy to a business depends on a number of factors. This includes which insurance companies are in the market for what types of risks and restrictions. While BOPs are fine packages of coverage, you haven’t missed out if your business has a Commercial Package Policy (CPP). A CPP is the right coverage for many businesses.  An insurance agent can determine whether your business is eligible for, and should have a BOP.

Business Personal Property Coverage

Business personal property coverage can include:

• a building owners’ business personal property in an apartment building
• office business personal property
• business personal property for merchants, wholesalers, and service or processing organizations
• commercial condo unit owners.

When you own a building, the same BOP must cover both the building and the business personal property. Otherwise business personal property can be insured alone in a BOP. This is good for businesses that lease or rent space.

Different BOP Forms

The CPP has different causes of loss forms that provide different levels of coverage. The ISO BOP has a named peril form (Standard) and a Special peril form.

The BOP named peril form will:

• have coverage for a dozen or so perils such as fire, lightning, windstorm and hail, sprinkler leakage, and vandalism

• usually cost less.

The Special peril form will:

• have coverage for all risks of direct physical damage except as limited in the policy

• have broader coverage than one setting forth specific perils.

Additional Coverages

By nature, the Special form has more coverages built in. The Standard form has approximately a dozen additional coverages. Among these are:

• debris removal
• counterfeit money orders and paper currency
• increased cost of construction
• forgery
• exterior glass and lettering (this includes replacement and repair of items on the outside of the building, commonly advertising-related materials)

• collapse and water damage.

Don’t worry, we’re not ignoring loss of business income and extra expenses from a direct insured loss. Frequently a loss from a fire or other insured peril goes beyond the direct damage caused by the fire. Even minor damage can close your business for a long time. This means your business has no income to maintain salaries and other expenses. Don’t ignore loss of income protection! We’ll get to the issue of a break in the workflow soon. 

* Tip. Business interruption coverage is not a luxury.

Coverage Extensions

Recall that extensions are an opportunity for you to have certain property covered after a loss. Extensions are controlled by:

• a limit on expendable dollar amounts
• an after-the-fact additional premium, or
• a territorial restriction.

The ISO BOPs make provisions for the following:

• newly acquired property
• personal property off-premises
• outdoor property
• personal effects (non business property)
• valuable papers and records
• collapse and water damage.

Coverage is limited in these areas. You may need specific insurance to cover one or more of these extension areas for your business.

Exclusions & Conditions

Exclusions and conditions are common in insurance policies. BOPs are no exception. You’ll find some exclusions and conditions from policy to policy, regardless of the type of insurance. Conditions are normally procedural matters and loss adjustments. Exclusions are matters the insurance is not designed to cover.

. Note. Remember an insurance policy must be read as a unit, not as independent paragraphs or sections.

A “one policy fits all” attitude will not work any more than one prescription for glasses works for every person. Our insurance needs are all different. Everyone has a different type of property, amount of property, location, ownership, and so on. Your prescription for insurance should closely reflect your risk of loss. That way you’re not paying more premiums than necessary.

PROPERTY INSURANCE TRICKS

ou may think, “At last, here are the secrets the insurance industry hides from us!” No, but you will find a number of tricks to make insurance work better. You’ll learn how to make the right choices when you buy your insurance

Boundaries On Loss Payments

How do you determine value? For example, my old refrigerator just gets noisier and noisier. Now if there’s an electrical fire, will the insurance company pay me for the cost of a new one? Or will I be paid what the old clunker was worth at the time of loss?

The standard recovery is Actual Cash Value or ACV. The law defines ACV in several ways. One ACV is current fair market value; another is replacement cost less depreciation. An insurance policy may qualify ACV giving the insurer the contractual right to replace or repair an item if this is economical.

Let’s say my refrigerator was only a year old when my place had a fire. The actual cash value of my used refrigerator is much less than a brand new one will cost. The loss payment is less than the cost of a new fridge. I’ve been let down by the insurance process. Policy options to the rescue!

I can save myself this problem if I buy replacement cost coverage on personal and real property. This is known as “new for old.” Of course there are controls on a loss recovery. This is designed to make it fair to me and the insurance company. Another tool for a fair recovery is inflation protection. This offers an automatic rise in insured property values so inflation won’t mean low recovery at the time of a loss.

Valued Policy, Valued Policy Law, Agreed Value Policy and similar names indicate policies with a special settlement provision. These policies have set amounts you must pay at the time of a total loss. Most common are collector vehicle policies. The amount to be paid for vehicle theft or destruction is set in the Declarations. In other words, this is a pre-adjusted loss.

* Tip. Don’t rely on the terminology for these insurance policies! It is seriously misused. Know your policy. Ask questions about things you don’t understand. Your agent is there to give you answers.

Some states have value laws. These require the insured value to be paid in a total loss. These laws stop insurance agents and companies from selling high dollar coverage that would never be paid under an ACV policy.

* Tip. Review your insured property values each year. Values change.

Why Do Deductibles Exist?

Sometimes it makes no sense to insure a small loss. Why? It could easily be paid out of pocket and deducted from your taxes. Besides, it can end up costing more than your recovery. Policy writing and claim adjustment costs make insuring small losses uneconomical for both sides. Deductibles eliminate small losses and save premium dollars.

Deductibles also reduce the chance that dishonest people would create losses if there was no cost to them. No one likes a deductible during a loss. But that deductible may save you more premium dollars than the amount of the deductible. Probably the first one that comes to mind is for a car. Those deductibles of a set number of dollars are called straight deductibles.

There are three other types of deductibles:

1.      Aggregate. Adds all losses up to a certain dollar amount. After that, other losses for the policy year are paid in full. That way a business knows its maximum dollar loss for the year.

2.      Franchise. Below a certain dollar amount, you pay for a loss. Above a certain dollar amount, the insurance company pays. These deductibles are common in ocean marine insurance where small losses from dampness, pilferage, and similar perils are common.

3.      Disappearing. Lives up to its name. When a loss is large enough, there is no deductible.

* Tip. Save money! Increase your Deductibles!

More Deductibles?

The few remarks here concern insurance tools that are like deductibles or otherwise control loss payments. Two deductible-like tools are found frequently in health insurance:

1.      Elimination or waiting period. Holds loss payments until a certain point is reach. You carry the losses up to that point.

2.      Percentage participation requirement (also called co-pay or, incorrectly, coinsurance - see below). Holds you to a set percentage of the payment in a loss.

Provisions

What happens if you have two insurance policies covering the same property? Insurance policies commonly have provisions for this situation. Even though they are not deductibles these provisions also serve to reduce moral hazard.

Policy provisions to multiple insurance policies covering the same property:

1.      call for the policies to split a loss prorate (no sense in buying more than one policy)

2.      make one policy primary and the other excess 

3.      bar any contribution to a loss, and

4.      with no provisions, both pay as in life insurance.

Coinsurance & Its Friends

Never tell an insurance agent that coinsurance is a type of deductible. Chances are, you will be considered wrong. A coinsurance provision in a property insurance policy means an insured shares in a loss. Isn’t this the act of a deductible?

Insurance rates are determined on a number of assumptions. A major one is projected losses. Another is that every insured will take enough insurance dollar-wise to cover the full value of an insured property. However, some insureds will figure that most losses are small and rarely a total loss. So those insureds will insure for less than the value of the property. In turn the premiums received by the insurance company are less than expected.

The insurance company reasons that if you want to insure for less than full value, you’ll have to share in the losses. The insurance policy will set a coinsurance percentage, frequently 10%. That percentage will be the basis for loss sharing. If the insured maintains insurance to the required percent, there is no loss sharing. For example, a $100,000 building, a 10% coinsurance requirement, and $90,000 of insurance equals full recovery. Meeting the required coinsurance percentage means no loss sharing.

Coinsurance penalties are established at the time of a loss. If your property has increased in value, surprise! Your loss recovery is reduced by a penalty.

Coinsurance is more complex in detail, but those are the basics. What looks like a rip-off at the time of a loss settlement actually translates into premium savings over the years. Want to avoid coinsurance problems? Then don’t avoid this tip!

* Tip. Dodge coinsurance penalties with avoidance tools. Review this with your agent!

Ask about an agreed value provision. This allows you and your agent to set the amount of insurance you carry. If this agreed amount is carried, then a coinsurance provision is waived. Other avoidance tools are Replacement Cost Coverage and Inflation Guard Protection. These prevent your coverage from falling below the required coinsurance percentage, forcing you to share a loss.

Reporting Forms

Business inventories can fluctuate widely over time. Perhaps the inventory is high because a special sale is scheduled. Or maybe Christmas season inventory is higher than normal. Goods may be moved from location to location for special sales or other reasons. Therefore, inventory can vary at multiple locations. Say that the business owner paid premiums based on the highest inventory period of the year. The result would be over insurance. Reporting forms allow you to pay the correct premium for the inventory despite varying inventory.

At the beginning of a year, you pay a provisional premium. Current inventory values are reported on a daily, weekly, monthly, quarterly, or policy year basis. At the end of the insurance policy year, you either pay additional premium or the provisional premium is returned.

* Tip. NEVER accept a reporting provision unless you can provide timely, accurate reports. There are penalties for failing to report properly.  

Improvements & Betterments—Or, Insuring Something You Don’t Own

You rent a new facility and installed permanent partitions, fancy lights and a large boiler. With a 15-year lease, it looks like you’re set until retirement. After a year of happiness, the building burns to the ground. You can’t collect for the loss of the permanent items you installed. Why? Because they legally became the landlord’s property. Where will you find the funds for a new location? The value of improvements to the real estate of others can be very expensive.

A person investing in improvements and betterments (alterations) to rented property can insure the use value of the changes. Permanently installed items or items that devalue the property if removed generally become the landlord’s property.

You can insure against the loss value of your changes. This begins at cost. But as the years go by, since you have had the use of your improvements, it is less. Conversely, the landlord can insure the value of your improvements. The term improvements and betterments is an old one intended to convey any type of improvement.

Another term, trade fixtures, is an important one because it conveys items like counters that can be removed legally even though permanently attached to the rented space. This is by custom but usually a lease will cover trade fixture ownership.

H Example. Let’s say I rent your space from you and I do not like the lights. I tear your lights out and install my own of much better quality. I better save your lights because when I leave, the space has to be made usable. In other words it needs lights. The time to set ownership of property installed in a landlord’s building is at the time of leasing.

* Tip. A proper lease takes into account questions like who owns what and who will insure what. That’s the key to protecting both the lessee and the lessor.

The “Vacant & Unoccupied” Trap

Properties that are vacant or unoccupied present a higher risk of loss than property in use. Vagrants can use vacant buildings for shelter. And fires can occur with no one to send out an alarm. Insurance companies will insure vacant and occupied buildings but they want to know it.

Provisions are often found in property insurance policies eliminating or reducing coverage for a building that becomes vacant or unoccupied. These provisions may become effective after so many days, 60 days is common. Coverage may not be cut for all perils, but only those likely to occur as vandalism and glass breakage.

Unoccupied means usual activities or operations have been suspended; however business personal property has not been removed. Vacant means empty. This trap should not catch you—just keep your insurance agent apprised of any periods of vacancy.

* Tip. The material in this chapter will make you a better insurance consumer and reduce surprises at the time of a loss.                

THE LOSS OF BUSINESS INCOME TRAGEDY

uddenly, your business is destroyed and your income stream crashes to a halt. It will be months before you can hope to be operating again. Your property insurance will provide funds to rebuild, but where will your personal expenses, e.g., your home mortgage, come from? Will your valued employees drift off if there are no funds for payroll? Will your customers return when you reopen? What if your business can’t stop and you must fund a temporary location?

H Example. A dairy owner can’t tell cows, “We’re not going to milk for a month or so.” A number of businesses must keep operating, such as newspapers and banks. There are, of course, other examples. Closed businesses can’t maintain customers or fulfill important contracts.

Business Interruption Coverage—Protect Yourself Before It’s Too Late

Many businesses know they need to cover their property with insurance to replace physical property. But most fail to see the significance of business stoppage. Fortunately, insurance is available to answer the need for income funds. Business Interruption, Business Income, Time Element, and Extra Expense are all terms used for insurable non-physical losses.

What Does Loss Of Business Income Insurance Mean For You?

Business income insurance covers business earnings in the event of an interruptive loss. The ISO forms state that:

coverage is provided for net income (net profit or loss before income taxes) earned or incurred. Coverage is also provided to continue normal operating expenses incurred, including payroll

Think Profit and Loss statement.

* Tip. Use a worksheet to determine coverage.

A business income worksheet establishes coverage amounts of business interruption insurance. This establishes dollar amounts of coverage with no uncertainty. Involve your accountant in preparing a worksheet.

Do You Need Extra Expense Dollars?

There are two major reasons for extra expense insurance: competition (for instance, small businesses) and public demand (newspapers, banks).

Extra expense insurance is bought with business income insurance. It provides extra operating money while the business income coverage provides earnings. The extra expense funds cover continuing operating costs. This might mean temporary operating quarters until the permanent quarters are repaired or rebuilt.

Important Info: Additional Time Element

If you have suffered a business income loss or an extra expense problem, you are required to pursue normal operation quickly. This requirement protects the insurance company. That way recovery isn’t prolonged because the business is enjoying an income stream.

What if business doesn’t return to normal volume right away? After the disaster of being forced to close, nothing is more discouraging than opening the door to a slow start. There is special insurance for this situation. It’s called Extended Loss After Operations Resume.

Sometimes one business depends seriously on another business. Perhaps there’s a fire at a computer chip factory and they can’t supply the computer manufacturer. Or the anchor department store in a business’s shopping center burns and shopping traffic disappears. Dependent Property coverage, formerly called Contingent Business Interruption Coverage, provides protection.

Many options exist in Business Interruption insurance. For example, the loss of rental from damaged property can be covered. So can the loss of tuition by organizations that receive their income at a given time of the year.

The specifics of business income coverage depend on the perils covered by the policy. The perils closely mirror those in the property policies we have looked at previously.

Coinsurance

If you liked the idea of waiving coinsurance in a property policy, you’ll like these four optional coverages that stop coinsurance from applying to a loss:

1.      Maximum Period of Indemnity

2.      Monthly Limit of Indemnity

3.      Business Income Agreed Value

4.      Extended Limit of Indemnity

 

* Tip. Every business should consider some form of loss of income insurance. Discuss this with your agent! It may be the most overlooked form of protection that you can’t afford to ignore.

LIABILITY

f you injure or damage a person or their property, you are liable to that person for damages. That’s a basic premise of our legal system. This premise came out of the English Common Law system as adopted by America. Some types of liability include contractual, product, and professional. The most familiar liability is negligence, or failing to avoid injury to others or their property.

Negligence is based on taking reasonable care to avoid bodily injury or property damage to others. We guard against the cost of our negligence with liability insurance. The same act may make you both criminally and civilly liable to others. However, liability insurance only protects against civil responsibility.

Auto Liability: Why?

You’re most familiar with automobile liability insurance. Business liability is just as dangerous as the auto liability. Let’s look at a number of liability insurance policies including general, auto, pollution and employee.

Despite the criticism surrounding auto liability insurance, jury awards and lawyers, we retain the negligence system. Why? Simply because no one’s ever come up with a more satisfactory system. When another person causes injury to you, your family, or your property, you want compensation from that person. Someone must take responsibility for the damage or injury.

No-fault coverage has been around for years. But it’s not a very popular idea to buy insurance for others’ mistakes. Should the person who ran the red light and caused you serious injury claim no responsibility?

12/27/2009 12:27 AM

16 Reasons Why Your Accountant Prefers Equity Index Annuities over Mutual Funds Have you heard about the remarkable savings vehicle that offers the appeal of market-linked gains without the worry of market-based losses? Your accountant certainly has, and he or she is beginning to weigh in on their many benefits, guarantees, and tax advantages. Consider: 

1. An EIA owner can never lose money due to a down market. Most if not all Equity Index Annuities today guarantee your principal, lock in gains from previous years, and provide a guaranteed minimum annual rate of return (usually 2-3%) on that total. During a year of growth, EIA owners participate in a portion, typically 55 to 80% of those gains, via linkage to the published returns of the various equity indices (the S&P 500, NASDAQ 100, DJIA, Russell 2000, etc.). During a subsequent down year, an EIA owner’s principal and accumulated gains are “locked in” and carried forward (also known as “annual reset”) to his/her next contract anniversary. If the markets should recover the following year, the EIA owner would again participate in a portion of those gains without having to climb out of the previous year’s correction. Not only do Mutual funds not provide the same benefit, an investor can lose substantial portions of both his principal and past gains during a market downturn.

 

1. Annuities grow tax-deferred, mutual funds don’t. Simply put, this means that you benefit from “triple compounding”: you earn interest on your principal, you earn interest on your interest, and you ear interest on the money you would otherwise have paid in taxes on both. If your annuity came with a first-year premium bonus, you would have benefited from quadruple compounding, having earned interest on that bonus as well. Mutual fund gains are annually reportable and taxable, thus denying an investor the benefits of such three-fold compounding.

 

1. Many Equity Index Annuities offer premium bonuses ranging from 4 to 11% of the original premium contributed. Some companies even continue this for any additional premium deposits made over the next 1-5 years. Mutual funds do not offer similar bonuses.

 

1. You control your taxes, not the fund manager. Equity Index Annuities grow tax-deferred until interest is withdrawn, thus allowing their owners to control precisely when and how much money will be taxable to them, depending on their needs and circumstances from one year to the next. Mutual fund owners are subject to the fund manager’s annual capital gains distributions whether or not they redeem any shares for additional income. Many equity funds have turnover rates averaging over 80% annually, meaning that management sells over 80% of their fund’s holdings every year, replacing them with other stocks (and sometimes even buying the same stocks back after January 1^st), often in an attempt to beat their category averages. Because of this, mutual funds rarely provide the 20% long-term capital gains tax rate that many claim their owners might receive. The reportable gains that a mutual fund shareholder must pay taxes on each year is exclusively a function of how long the fund manager holds the underlying investments he or she purchases, and has almost nothing to do with how long the shareholder has owned his or her fund.

 

1. Mutual funds often make annual taxable distributions to fund owners, even when the value of their funds has gone down in value. Mutual funds not only require income reporting (and the resulting annual taxation) when the mutual fund is going up in value, but can also impose income taxes in a year when the fund has gone down in value. When the markets take an extended downturn after several years of sustained growth (as they did in 2000-2002), fund managers will often resort to the selling of appreciated stocks purchased several years earlier, in order to generate gains to offset those losses. This has the effect of minimizing the fund’s published loss-in-value at year end, allowing the fund to claim that it was “only” down, say, 9% on the year while it’s peer group was down an average of perhaps 17%. The unsuspecting shareholder of this fund receives his December 31^st statement, sees his account is down 9% and assumes incorrectly that “at least” he’ll own no taxes on his “loss” come April 15^th. Three weeks later, he receives a Form 1099-Div from his mutual fund company showing several thousand dollars of reportable income. The reason for this is that the longer-held stocks which the fund manager sold to reduce his fund’s year-end loss were sold at a gain (over their original purchase price years earlier), a gain that is now reportable and taxable to the mutual fund owner even though his statement shows his account balance is down. Equity Index Annuities grow tax-deferred, cannot lose value in a market downturn, and impose no annual tax reporting as the annuity is increasing in value.

 

1. EIAs avoid a myriad of tax traps. The ownership of mutual funds may require the mutual fund owner to pay estimated taxes. Tax-deferred accumulation inside an Equity Index Annuity does not create the same tax problem. Equity Index Annuities are easy to position so that, at the owner’s death, the annuity will not be subject to either estate or income taxes. The Same tax reduction techniques do not work nearly as well with mutual funds. There are numerous, often costly, tax traps associated with the timed buying and selling of mutual fund shares, traps that do not apply to Equity Index Annuities. Additionally, mutual fund ownership can result in the loss of tax exemptions, tax reductions, and tax credits, and mutual funds (except those held in an IRA) are usually subject to state and local income taxes in those states that have such taxes. These losses do not occur with Equity Index Annuities and, because they grow tax-deferred, EIAs are not subject to state and local accumulation phase. Finally, mutual fund ownership, specifically the annual distributions made by such mutual funds, can subject the fund owner to taxation under the Alternative Minimum Tax (AMT). The AMT always results in increased income taxes. Equity Index Annuity ownership cannot trigger the AMT in the same manner as mutual funds.

 

1. Mutual funds may cause income taxation of Social Security benefits. The annually reported earnings from mutual funds can, in many cases, cause a retired couple’s income to exceed the thresholds above which up to 85% of their Social Security benefits are taxed in their income bracket. The growth within an Equity Index Annuity is tax-deferred until taken as income, and the annuity owner (vs. the mutual fund manager) is in control of his or her reportable income, thus enabling them to reduce or even eliminated the taxation of their Social Security benefits.

 

1. Mutual funds create an income tax trap for individuals purchasing funds late in the year. Because mutual funds must distribute realized gains to fund owners each year, fund companies usually do so in November or December. An uninformed investor purchasing such a fund during the last quarter of the year may place himself at a tax disadvantage by taking on a partial tax liability for gains which took place earlier in the year which he never saw accrued to his account. Equity Index Annuities present no such problem when late-year purchases are made.

 

1. Equity Index Annuities are almost always less expensive to own than most mutual funds. According to The Wall Street Journal, mutual fund costs include “expense ratios, turnover costs, 12b-1 fees, sales charges, out-of-pocket fees, and other expenses totaling as much as 3% per year.” In addition, such costs have tended to go up over time. An Equity index Annuity’s maximum costs are always fixed at purchase and are guaranteed not to go up.

 

1. The record-keeping requirements for owning mutual funds are significantly more complex, especially for many seniors, that the record-keeping requirements for owning Equity Index Annuities. The Keeping of excellent records (redemptions, purchases, dates, values, commissions, etc.) is often one’s only defense in the even of an IRS audit. With an EIA, one’s records are kept by the insurance company, copies of annual statements are mailed to the owner, and distributions (if any) are totaled and reported at year end.

 

1. Mutual funds are commonly part of a decedent’s probated estate, which makes such funds available to any and all creditors of the estate. In addition, they are subject to the delays and expenses of probate. Equity Index Annuities, on the other hand, are almost always non-probate property that passes outside of probate directly to one’s named beneficiaries, and is therefore not subject to one’s posthumous creditors, unwanted public disclosure, or similar delays and costs. Your heirs receive their annuity proceeds within weeks, not months or years after your death.

 

1. Medicaid disqualification and lifetime income. Equity Index Annuities can provide their owners with a guaranteed stream of income for their entire lifetime, regardless or how long they live. They can often reclassify their annuities so that they are not considered assets for Medicaid disqualification of nursing home costs. This is often beneficial when reorganizing one’s affairs, and converting assets to income prior to nursing home confinement. Mutual funds cannot be converted in a similar manner, and are almost always considered “countable” Medicaid assets.

 

1. .  Nursing Home Waiver. Most annuities will double an owner’s penalty-free access to cash from their annuity, often waiving any remaining surrender penalties when such individuals suffer a serious illness, need at-home care, or become confined to a nursing home. Mutual funds do not provide a similar waiver when contingent deferred sales charges still apply to a mutual fund account whose owner needs to sell some shares to fund the cost of such a stay.

 

1. .  Equity Index Annuities may provide basic as well as enhanced death benefits to the beneficiaries of the EIA owners, and neither the owner nor the beneficiary can ever lose money due to a down market. Mutual funds provide no such guarantees or death benefits of any kind.

 

1. .  EIAs allow the tax-free exchange of one contract for another. An Equity Index Annuity owner may exchange their annuity for a completely different annuity without triggering income taxes. A mutual fund owner cannot move funds from one mutual fund company to another without selling his shares at the former (thus triggering a taxable event), and repurchasing new shares at the latter, often subject to sales charges at both.

 

1. .  Mutual funds do not provide cost-free asset rebalancing whereas Equity Index Annuities do. This option is usually available among the major equity indices (the S&P 500, NASDAQ, DJIA, Russell 2000, etc.), as well as a fixed interest option, at policy anniversaries. Rebalancing one’s portfolio within a family of mutual funds always requires the sale and purchase of shares, often generating both taxes and commissions.

 Grab your family and call Grant Davis 888-991-2929 today, to see if an annuity might be right for your family.  There are many options, and little need for market risk! 

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