Life Insurance For Key Employees

 

Who Is a Key Employee?

A key employee is someone whose knowledge and skills contribute significantly to your business income. Losing a key employee would most likely cause substantial negative financial consequences for your business. According to a survey of small businesses by the National Association of Insurance Commissioners, 71 percent of the firms surveyed said they were very dependent on one or two key people for their success. However, only 22 percent of respondents had key person life insurance in place.

What Is Key Employee Insurance?

Life or disability income insurance can compensate your business when certain key employees die or become disabled. These coverages cushion some of the adverse financial impact that results from losing a key employee’s participation.

How Much Life Insurance Is Advisable?

There is no set formula for putting a dollar value on the financial impact of a key employee’s death. Nevertheless, you need to come up with a figure as a guide to how much insurance coverage to buy. Some life insurance companies provide formulas for this which may or may not have a realistic relationship to the employee’s worth to your business.

In some cases, a look at the employee’s responsibilities can facilitate valuation. If, for example, the employee is responsible for a certain volume of sales, the loss is the profit derived from the person’s sales, less the profit that could be expected from a replacement.

Also to be included is the expected cost of replacing the employee, including employment agency fees and moving expenses and possibly a higher salary for the replacement.

Who Owns the Life Insurance Policy?

Usually, your organization owns the policy, pays the premium and is the beneficiary. Alternatively, your business and a key employee may agree to split the premium payments, cash surrender and death benefit value.

The employee must agree to the company’s purchase of this insurance. The insurer may also require a resolution from your board of directors stating the policy’s purpose.

What Kind of Life Insurance Should I Buy?

Businesses usually use term insurance when the only purpose is to compensate for losses caused by the key employee’s death. Policies that accumulate cash value are appropriate in some circumstances. Discuss which is better for your business with your life insurance agent.

What Is Key Employee Disability Income Insurance?

Key employee disability income insurance is less well known than key employee life insurance. Nevertheless, the risk of a key employee experiencing partial, total or permanent disability is actually much greater than the risk the person will die. Should a key employee suffer permanent total disability, the loss to your business will be just the same as if the person had died. Key employee disability income insurance protects the business from this loss exposure by paying you anywhere from 40 to 70 percent of the disabled employee’s earned income.

If the disabled person is a partner or sole proprietor, a business overhead expense disability policy provides some protection. This pays, up to the policy limit, office expenses including rent, utilities, salaries and depreciation that continue when a partner or sole proprietor is disabled.

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What coverage is included in a standard homeowners insurance policy?

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

1. Coverage for the structure of your home.
2. Coverage for your personal belongings.
3. Liability protection.
4. Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.

1. The structure of your house

This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.

Most standard policies also cover structures that are detached from your home such as a garage, tool shed or gazebo. Generally, these structures are covered for about 10% of the amount of insurance you have on the structure of your home. If you need more coverage, talk to your insurance agent about purchasing more insurance.   

2. Your personal belongings

Your 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% of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory.

This part of your policy includes off-premises coverage. This means that your belongings are covered anywhere in the world, unless you have decided against off-premises coverage. Some companies limit the amount to 10% of the amount of insurance you have for your possessions. You have up to $500 of coverage for unauthorized use of your credit cards.

Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for it's appraised value. Coverage includes “accidental disappearance,” meaning coverage if you simply lose that item. And there is no deductible.

Trees, plants and shrubs are also covered under standard homeowners insurance. Generally you are covered for 5% of the insurance on the house—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.

3. Liability protection

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter or dog accidentally ruins your neighbor’s expensive rug, you are covered. However, if they destroy your rug, you are not covered.

The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.

Liability limits generally start at about $100,000. However, experts recommend that you purchase at least $300,000 worth of protection. Some people feel more comfortable with even more coverage. You can purchase an umbrella or excess liability policy which provides broader coverage, including claims against you for libel and slander, as well as higher liability limits. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.

Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without a liability claim being filed against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for your family or your pet.

4. Additional living expenses

This pays the additional costs of living away from home if you cannot live there due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other expenses, over and above your customary living expenses, incurred while your home is being rebuilt.

Keep in mind that the ALE coverage in your homeowners policy has limits, usually a percentage of the amount of coverage you have on your home, and some policies include a time limitation. But the amount of ALE coverage is separate from the amount available to rebuild or repair your home. For example, suppose you have a policy that provides up to $150,000 in rebuilding costs and up to $15,000 (10 percent) for ALE and you use up the entire $15,000, your insurance company will still pay what it costs to rebuild your home up to the policy limit of $150,000.

Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on your house. You can increase this coverage, however, 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.

If you rent out part of your house, ALE coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.    

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When Renewing Your Auto Insurance Policy, Understanding All of Your Coverage Options Could Save You Money

 

Whether buying coverage for the first time or renewing an existing auto insurance policy, consumers should take advantage of a highly competitive insurance marketplace, according to the Insurance Information Institute (I.I.I.).

Consumers can contact their insurance agent or company representative to make sure they are getting the right type of auto insurance at the best possible rate. As a consumer, it is important to educate yourself about all of your coverage options by asking questions and making sure you are getting any available discounts.

Your insurance premium rate is based on a variety of factors including your driving record; how much you use your car; where it is parked and where you live; the type of car you drive; your age and gender; your credit score; and the type and amount of coverage.

To help consumers get the best auto insurance policy at the best price, the I.I.I. offers the following suggestions.

1. Comparison Shop

Prices and coverage levels vary from company to company, so it pays to shop around. Get at least three quotes. You can call insurance agents or companies directly, as well as get information on the Internet. But, do not shop by price alone—look for an insurance company that has a reputation for good customer service. Ask friends and relatives for recommendations and check consumer guides as well as your state insurance department’s website. And, lastly remember to review the insurance company’s financial strength rating.

2. Check Insurance Costs Before Buying a Car

Auto insurance premiums are based in part on the price of the car, the cost to repair it, its overall safety record and the likelihood of theft, so it is worth taking these factors into consideration before making a decision about which car to buy. 

3. Increase Your Deductible

A deductible is the amount you pay before your insurance policy kicks in. By requesting a higher deductible on comprehensive or collision coverage, you can lower your premium costs substantially. Before choosing a higher deductible, be sure you have enough money set aside to pay it if you have a claim.

4. Reduce Coverage on Older Cars

Consider dropping the optional comprehensive or collision on older cars. If the market value of your car is less than 10 times the auto insurance premium you are paying, purchasing collision coverage may not be cost-effective. 

5. Ask About All Available Insurance Discounts

Insurance companies offer a wide variety of discounts—here are some you can ask about:

• Antitheft devices
• Multiple policies with the same company
• College students living away from home
• Defensive driving courses
• Drivers ed courses
• Good credit record
• Higher deductibles
• Low annual mileage
• Long-time customer
• More than one car
• No accidents in three years
• No moving violations in three years
• Student drivers with good grades 

For more information call Clay Paul Insurance

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Artisan Contractors

The category of artisan contractors, also known as casual contractors, includes many occupations that involve skilled work with tools at the customer’s premises. Carpenters, plumbers, electricians, roofers and tree surgeons are some of them. Also included are diverse other skilled service providers, such as interior decorators, piano tuners and exterminators.

Special insurance needs of this group include coverage for equipment and tools that are often moved around and for the value of work done for a customer until it is finished.

For many artisan contractors, the most cost effective and efficient way to obtain property and liability coverage is with a Businessowners Policy (BOP) especially tailored to their needs. Although marketed under a variety of names, these policies will typically have provisions similar to the BOP's.

PROPERTY INSURANCE

The BOP covers real estate and other property that your business owns that is located at the described business premises. If your business rents or leases its premises, the BOP provides coverage for tenants' improvements and betterments. These are fixtures, alterations, installations or additions that you have put into the space that cannot legally be removed from the landlord’s premises.

Your biggest personal property loss exposures, however, may involve valuable machinery and equipment that moves around from job to job and is not covered by the standard property insurance. Such movable property is insured by contracts that insurers call "floaters."

An installer’s floater covers all kinds of machinery and equipment during transit, installation and testing at a customer’s premises. Even building materials may be covered, but the more usual coverage is for equipment or machinery that only contractors install, such as heating or air conditioning. The policy can be written to cover a single job or on a reporting form, meaning that you provide the insurer with information about each new contract you undertake.

A tools and equipment floater covers the insured property wherever it is used and may include such items as hand tools, power drills, hoisting machines and power pumps.

LIABILITY INSURANCE

Given the possibility of a lawsuit should someone claim to have been harmed by your work, you will almost certainly need liability insurance.

If working as a subcontractor, your customer may require you to have Owners and Contractors Protective Liability (OCP) coverage. This protects either a property/businessowner or a general contractor from possible liability arising from the negligent acts of an independent contractor or subcontractor hired to perform work on behalf of the insured. The actual purchaser of the policy is the independent contractor or subcontractor, but the protection is for the benefit of the property/businessowner or general contractor for whom the work is being done.

BUSINESS VEHICLE INSURANCE

Your personal auto policy probably provides coverage for some business use of your truck, van or other vehicle. A personal auto policy is unlikely to provide coverage, however, if the vehicle in question is used primarily in business. It will not provide coverage for any vehicle owned by a business. For those vehicles you must have a business auto policy.

If you’re driving a truck you own personally for a business purpose and get into an accident for which you are liable, an injured person could sue you personally. Will your personal auto policy have enough coverage to pay all the damages? If not, a lawsuit may be filed against your business. If you use personal vehicles for business, you want to be sure you have high enough limits to protect your business. You should discuss this with your insurance agent.

WORKERS COMPENSATION INSURANCE

States have varying rules about when an employer must provide workers compensation insurance. If you have three or more employees, you should check with your state department of workers compensation to see if you are required to provide workers comp insurance.

 *Please call an insurance professional to discuss

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If You Are Planning to Buy a New Boat at One of This Month’s Boat Shows, Make Sure to Get Proper Insurance Coverage Too

With many boat shows scheduled for February, you may be thinking about buying the boat of your dreams. But amid all the excitement of purchasing a new boat, it is also important to factor boat insurance into your decision, according to the Insurance Information Institute (I.I.I.).

Boat insurance provides physical damage coverage to repair your boat if it is accidentally damaged or destroyed by a covered peril such as collision, fire, theft, vandalism, windstorm or lightning. The coverage is broad, and provides insurance for the boat, including its machinery, fittings and auxiliary equipment, outboard motors, boat trailer, permanently attached equipment (e.g., anchors)—up to an agreed value—and personal property. It also covers: damage caused to someone else’s property; medical payments, for injuries to the boat owner and other passengers; bodily injury, for injuries caused to another person; and guest passenger liability, for any legal expenses incurred by someone using the boat with the owner’s permission.

“Insurers assess the size, type and value of the boat, and the waterways in which it will be navigated, when determining how much you will pay for insurance coverage,” said Loretta Worters, vice president with the I.I.I.

A boat insurance policy can provide physical damage coverage on an Actual Cash Value or an Agreed Amount Value basis. Both types of boat insurance policies offer important coverage, but with significant differences.

• Actual Cash Value policies pay for replacement costs less depreciation at the time of the loss. In the event of a total loss, used boat pricing guides and other resources are used to determine the approximate market value of the vessel. Partial losses are settled by taking the total cost of the repair less a percentage for depreciation.
• Agreed Amount Value basis policies mean that you and your insurer have agreed on the value of your vessel and in the event of a total loss you will be paid that amount. Agreed Amount Value policies also replace old items for new in the event of a partial loss, without any deduction for depreciation. 

According to the I.I.I., typical boat insurance policies include deductibles of $250 for property damage, $500 for theft and $1000 for medical payments. Higher limits may be available. Additional coverage can be purchased for trailers and other accessories. Most companies offering boat insurance have liability limits that start at $15,000 and can be increased to $300,000. Boat owners may also consider purchasing an umbrella liability policy which will provide additional protection for their boat, home and car. Boaters should also inquire about special equipment kept on the boat, such as fishing gear, to make sure it is covered and verify that towing coverage is included in the policy.

Boat owners should also ask about discounts for the following:

• Diesel powered craft, which are less hazardous than gasoline powered boats as they are less likely to explode
• Coast Guard approved fire extinguishers
• Ship-to-shore radios
• Two years of claims-free experience
• Multiple policies with the same insurer, such as an auto, homeowners or umbrella policy
• Completion of safety education courses  

 *Please call an insurance professional immediately for more information

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