Question
Actual cash value (ACV)

Answer
This is a method used to figure the values for property when settling a claim. If your policy says it provides for Actual Cash Value settlement, it generally means that your policy will pay the depreciated cost of your property, up to the amount of coverage in your policy. For example, a new TV costs $1,000. Your insurance company would determine the amount of your settlement by subtracting from $1,000 an amount that reflects your usage.

Question
Additional living expense coverage

Answer
The extra costs of living someplace else when your insured home is unlivable due to damage caused by a covered loss.

Question
All-risk insurance

Answer
An all-risk policy pays for losses from damage to property when the cause of damage was direct, sudden and accidental and is not excluded from your policy. An "all-risk" policy covers all perils (causes of loss) that are not specifically listed as excluded within the policy. May also be referred to as "comprehensive" or "open peril."

Question
Am I covered for natural disasters or Acts of God?

Answer
Comprehensive insurance, which covers you for fire and theft, generally covers you against damage by flood, earthquake, hail and other natural perils, except when your car is overturned (which is technically considered a collision). If you have special concerns about the safety of your vehicle in the face of Mother Nature's wrath, contact your agent for information on catastrophic coverage.

Question
Are the backyard shed and my color TV both covered in my homeowners policy?

Answer
Yes, they are both your property so they are both covered. The value of the real property—your home, garage, shed and other structures—is generally based on the value of the main structure, the house itself. Thus, if the house were insured for $75,000, the shed, detached garage and other auxiliary structures would be covered for 10 percent or $7,500 worth of damages. Additional property protection features may include living expenses should your home not be habitable for a period of time.

Your personal property is also covered by a homeowners insurance policy. Personal property includes the contents of your home and personal belongings used, owned, worn, or carried by you or members of your household—basically, everything and the kitchen sink! This coverage is also based on the house coverage, and there are limits on the losses that can be claimed. Higher limits can be purchased for both real and personal property.

Question
Are there any other exclusions I should know about?

Answer
There may be other exclusions spelled out in your policy such as neglect, intentional loss, “earth movement,” general power failure and even damage caused by war. If you neglect to take care of your property (e.g., a leaky roof), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage.

One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new materials may not be covered for the full price.

For example, if the current building code in your area requires a higher grade of electrical wiring and after a fire you are replacing all the wiring in your home, your policy may cover only the cost of replacing the older wiring. The difference in cost between the old wiring and the new wiring required by ordinance or law is your responsibility.

Even if you live in a fairly new home, laws and building codes are constantly being updated. Coverage to include ordinance or law requirements can be added to your homeowners policy with an endorsement—an addition that could save you money in the long run.

Question
Are there different types of life insurance I should consider?

Answer
Although there are many types of life insurance policies, nearly all are variations of two basic types—term and permanent. (A third type, known as “universal” life, is a combination of term, permanent and various investment options. Its complexity is beyond the scope of our overview, but if you are interested, your agent can discuss if universal is a good fit for your life insurance needs and goals.)

Term insurance is exclusively death coverage. The policies are written for a specific length of time (the “term” referred to in the name). Common terms are one year, five year and ten year, although longer terms may be available. If the insured dies during the term of the policy, the death benefit is paid to the beneficiaries. If at the end of the term the insured is still alive, the coverage ends.

Unlike term insurance, a “permanent” insurance policy (often referred to as “whole life”) never terminates as long as the premiums are paid. It also builds cash values in the policy that can provide valuable “living” benefits in addition to the death benefit.

Question
Are there other ways that flexible benefits contain costs?

Answer
In addition to tax savings and efficiency in spending benefits dollars, there is a range of cost management tools commonly used to control costs in flexible benefits plan. They include:

• Cost shifting
• Wellness programs
• Utilization review
• CPT code review
• Pre-admission certification
• Concurrent review
• Retrospective review
• Second surgical opinions
• Individual case management
• Self-insurance
• Preferred provider networks
• Health maintenance organizations
• Coordination of benefits
• Non-duplication of benefits

Question
Are there restrictions on who can offer flexible benefits?

Answer
Any employer can offer flexible benefits, but some restrictions apply to who is eligible to participate. Under Section 125, only employees may participate. The result of the Section’s definition of employee is that while employees of partnerships, sole proprietorships and S Corporations may participate in flexible benefits, the company owners may not; that is, partners, sole proprietors and greater than 2% owners of S Corps are excluded. This exclusion does not apply however to the portion of the flexible benefits plan that is outside the Section 125 plan.

Question
As a retailer, do I need to worry about product liability?

Answer
As long as you do not alter the products you receive from manufacturers for resale, you have only a secondary liability. The product manufacturer is the first liable party. General liability insurance usually covers this secondary liability, but you should check with your agent to be sure your business is adequately covered. Recognize, too, that your liability policy will pay defense costs, whether or not a judgment is rendered against you.

Question
Can I do anything to lower my business insurance premiums?

Answer
Remember that all insurance premiums are based on the risks involved. The insurance company evaluates the situation to determine the risks—or potential for losses—and bases its rates on the results. Therefore, deliberate steps you take to lower your risks not only can help safeguard your business but also may make you eligible for lower insurance rates. Consider these steps:

• Maintain adequate lighting throughout your business premises.
• Keep electrical wiring, stairways, carpeting, flooring, elevators, and escalators in good repair.
• Install a sprinkler system, smoke and fire alarms, and adequate security devices.
• Keep only a small amount of cash in the cash register.
• Keep good records of inventory, accounts receivable, equipment purchases and the like. Consider keeping a second set of records off-site, such as with your accountant, agent or at home.
• Make sure your employees have good driving records.
• Make sure your employees know how to lift properly and use all necessary safety equipment, such as goggles, gloves and respirators.
• Consider using the services of a risk manager. Such an outside consultant can advise you of any safety or environmental regulations you may have overlooked or not been aware of and talk to your employees about safety practices.

You may also wish to raise your deductible where appropriate to lower your insurance premiums. How high to raise the deductible should be governed by how much you can afford to pay out of pocket. Be careful not to raise it so high that you cannot cover it should a loss occur.

Finally, make sure your agent is familiar with your business and the risks inherent in it. He or she should be able to advise you on risk management techniques and their benefits to both you and the insurer.

Question
Claim

Answer
An instance in which an insured seeks to recover payment under an insurance policy for a loss covered by that policy.

Question
Claims Adjuster

Answer
Person who directly investigates a claim filed by the insured. The adjuster also assesses whether or not the loss is covered by the policy.

Question
Coinsurance

Answer
Requires the customer to carry insurance equal to a specified percentage of the value of the property insured in order to receive full payment of a loss.

Question
Comprehensive

Answer
Coverage that covers any direct, sudden and accidental physical damage losses except those excluded in the policy (See All-risk).

Question
Coverage limit

Answer
The extent of protection against losses provided under the terms of an insurance policy. Also called "insurance" or "protection."

Question
Debris removal

Answer
Covers the cost of hauling away materials or wreckage left by a covered peril. For example, this might pay for the cost to haul away roof sections, burnt walls and damaged furniture after a fire.

Question
Deductible

Answer
Some policies are written to pay only after the policyholder has suffered an agreed amount of loss. The amount the policyholder must pay first is the deductible. It's "deducted" from the total loss amount to determine how much the company must pay. Even though a policy has a deductible, there may be coverages within a policy that are not subject to that deductible.

Question
Do all states require some kind of liability insurance?

Answer
Some states, while not mandating auto insurance, have "financial responsibility laws" that require all drivers to be able to pay for any damage or injury they may cause. However, carrying liability insurance is still the best way for you to meet your state's financial responsibility requirements.

Uninsured motorist (UM) and underinsured motorist (UIM) policies are offered by law in all states, including no-fault states. In fact, some states require all motorists to carry this coverage to gain protection from inadequate insurance coverage of other drivers.

Question
Do I always need to buy auto insurance when I rent a car? Am I not covered by my own policy?

Answer
If you have fully insured your own vehicle, including collision and comprehensive coverage, and rent a vehicle for pleasure only (while on vacation, for example), you do not need to buy extra insurance from the rental company. In fact, in most states your basic rental fee by law will include liability coverage for damage or injury to others. But different rules apply when you rent a car for business purposes, so check with your agent for details.

If you do not have your own insurance, be aware that many car rental liability policies cover you only at the state's required minimum. Also, you should buy the collision and comprehensive coverage offered by the rental company for your own protection. Plus, do not buy a collision damage waiver (CDW) from the rental company assuming it is insurance. A CDW simply releases you from financial responsibility if you damage the vehicle you are renting, provided you comply with the terms of the rental contract. But those terms can vary considerably, and CDWs are not state-regulated, which means they are technically not insurance.

It's always a good idea to review your policy before renting a vehicle and, if necessary, contact your agent for clarification.

Question
Do I have to die to collect life insurance?

Answer
For term insurance, the answer is always “yes”. For permanent insurance, as the “living” benefits accumulate, they may be used to provide funds for financial needs such as loans, premium payments and retirement benefits.

Question
Do I need an individual policy if I have group insurance at work?

Answer
Maybe. Many factors must be considered, such as: Do I plan to remain at my current job? Do I feel secure in my current job? What current benefits does my employer provide, and do I feel they are sufficient? Are there certain benefits that are not provided, or limited in a way I feel leaves a gap to be filled in my coverages? Are there members of my family who are not adequately covered, or are ineligible, for my group benefits?

Discuss these issues with your agent and he or she can make a recommendation as to the best choices to assure your medical coverages are adequate for your needs.

Question
Do I need special auto insurance for a classic car?

Answer
You should always talk to your agent about coverage of rare and valuable property. Since a classic car usually cannot be replaced, you'll probably want ample compensation if it is lost. A classic car, because it is rare or unique, may indeed require a special insurance policy.

Question
Do I really need insurance for my home?

Answer
For most people, their home is their single most valuable possession and largest investment. Homeowners insurance protects your investment as well as you, your family and your household possessions.

If you were to suddenly lose your home due to fire or a tornado, or have the contents damaged or stolen, you probably could not afford to replace everything all at once. If somebody sued you for an injury or damage caused by you or your property, the cost of defending against that lawsuit could be very expensive regardless of the outcome.

All of these situations are covered by the homeowners package policy. And while it may be unpleasant to think about fire, theft, and other uncertainties of life, let's face it, that’s reality.

Yet another reason you need to carry homeowners insurance is that mortgage lenders require it. No mortgage company will lend the large amounts of money needed to finance homes at today's prices without requiring an insurance policy to protect that investment.

Question
Do you insure yachts?

Answer
Yes. Many types of high performance boats and yachts can be insured through our agency.

Question
Do you insure high performance boats?

Answer
Yes. All types of high performance boats can be insured through our agency.

Question
Do you insure personal water crafts?

Answer
Yes. All types of Jet Skis and Waverunners can be insured through our agency.

Question
Does a boat owner's driving record affect premiums?

Answer
Yes. Similar to auto insurance, driving history is very important.

Question
Does it matter how I die as to how much my beneficiaries will collect?

Answer
During the first two years of the policy period, there may be conditions (fraud, misstatement of age, suicide) that can affect the death benefit paid by the policy. Your agent can discuss these with you. After two years, the full policy death benefit is payable, regardless of the cause of death. (Some policies may also pay extra benefits in certain conditions, such as the insured dies in an accident.)

Question
Does my policy cover my possessions even when I go on vacation?

Answer
Yes, perhaps in this case the term "homeowners" is misleading because this is a package of insurance coverage that extends to all your possessions no matter where they are. If you take a round-the-world vacation and lose a valuable item, as long as the loss is by a covered event or peril, the location does not matter.

The liability component also extends well beyond the boundaries of your home. Should you be found legally at fault for injury or loss to another individual, whether you unfortunately caused a tumble down a San Francisco hill or a fall in an Indiana barn, that is personal liability which again is addressed in your homeowners policy.

As in the property section of your homeowners policy, there are limits and exclusions to personal liability. Your business activities, for example, are not covered under a homeowners policy. You are also not covered for injuries or damage you purposely cause. So if a fight with a neighbor turns physical and you end up bopping him on the nose, your homeowners insurance will not cover the injury or any resulting suit. Your policy lists specific exclusions and limits

Question
Everybody seems to be suing everybody else these days. What if someone sues my business?

Answer
No business can afford to be unprepared for a lawsuit. Liability insurance protects your business assets when the business is sued for something the business did (or failed to do) that contributed to injury or property damage to someone else. Liability coverage extends not only to paying damages but also to the attorneys’ fees and other costs involved in defending against the lawsuit—whether valid or not.

The standard businessowners policy provides liability coverage, as does a separate policy known as a commercial general liability (CGL) insurance policy. Generally, commercial liability insurance, whether purchased in a separate policy or as part of a standard businessowners policy, will cover bodily injury, property damage, personal injury or advertising injury. The medical expenses of a person or persons (other than employees) injured at the business or as a direct result of the operations of the business are also covered.

Usually excluded from both types of liability insurance policies are suits by customers against a business for nonperformance of a contract and by employees charging wrongful termination or racial or gender discrimination or harassment.

Check with your agent about the best liability protection covering all types of situations that may arise in your business.

Question
Extended coverage

Answer
A group of perils that are either packaged or offered as an option with dwelling fire policies. These perils are: windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle and aircraft.

Question
FAIR Plan

Answer
An insurance program made available to risks that are unable to secure coverage through regular channels because of various reasons (i.e., vacancy, high vandalism). Not available in all states.

Question
Flexible payment plan

Answer
Allows you to pay your premium in 1, 2, 4 or 10 installments.

Question
Help! I've lost everything! Where do I start?

Answer
If most of us suddenly found ourselves without anything due to some calamity, we would be hard pressed to know all that we had lost. When was the last time you counted the number of shoes you own or CDs, not to mention furniture, dishes, drapes, or audio and video equipment? The list goes on and on. How much is it all worth and where would you start if you had to replace it?

Now is the time to make a list of major household items and possessions. The handy inventory form at the back of this guide will make your job easier. Just remember that, where possible, it is wise to list the serial number, date and cost of purchase, and even include the receipt if you can.

Another easy way to inventory your home is to use a video camera or take pictures of your home and its contents. As you take the video, you can also talk about the items and their date and cost of purchase.

Whichever method you choose, have a copy made and ask a friend or family member to hold on to it. Or store your copy in a safe deposit box. That way if the worst happens and your home is destroyed, the inventory list will be safe at another location.

Question
How are prices determined for renters insurance?

Answer
Renters insurance is surprisingly inexpensive. That's because you are not insuring a building. Like all property/casualty policies, the value of your property to be insured and other risk factors are weighed by the insurance company to determine your premium. Your agent can help you find the best combination of coverage and cost.

Question
How can flexible benefits save money?

Answer
On the Section 125 portion of the plan, there are tax savings for both the employer and the employee. A larger potential for savings comes from the design and pricing strategy for the plan. The pricing structure helps to mitigate adverse selection, and increase the efficiency of benefit spending. By putting different price tags on the possible options, employees become "benefits consumers" and market forces begin to operate. The personal value of a benefit or a certain level of coverage and its price tag will be carefully evaluated by employees desiring to make shrewd purchases for themselves, in the process conserving both their own funds and those of their employer. Furthermore, having choices between various levels of coverage and price tags, and the ability to tailor one’s benefit plan to one’s personal needs and situation, is in itself highly valued among employees and increases the intrinsic value of the benefits plan.

Question
How do they set a price for life insurance?

Answer
Although there may be a myriad of fees, expenses, interest assumptions, and other factors used to develop a given life insurance company’s premiums for a policy, the rates for life insurance are ultimately based upon one factor—the statistical chances of the insured dying in a given year. Such statistics, based upon insurance company experience and government records, are used to calculate an annual “death cost” for each $1,000 of life insurance benefit.

Since statistically few people will die at younger ages, the death cost for those years will be extremely low. As people age, the statistical chance of death increases—slowly at first, then more rapidly after the insured passes middle age—and therefore so does the annual death cost.

Question
How does a health insurance deductible work?

Answer
A deductible is the amount you must pay before the insurance company begins to pay on your bills. This is an annual amount per insured person, although typically there will be a maximum amount of deductibles you will have to pay in a given year. For example, if your “per person” deductible is $500, and you have five people in your family covered under your health insurance, the maximum “family” deductible will usually be $1,500. Once three of the people in your family have paid out a $500 deductible, no more deductibles will apply to any member of the family for the remainder of the year. This can vary, so be sure to discuss the specifics of your policy with your agent.

Question
How does adding drivers to my auto insurance policy affect my rates?

Answer
The more people you allow to drive your vehicle on a regular basis, the greater the chances of your vehicle being in an accident. Teenagers are especially expensive to insure because they are the least experienced drivers.

A driver's education course can help ease the burden of insurance costs since it teaches your teenager defensive driving techniques. If your child's high school does not offer driver's education, try to find one offered by another school or a private firm in the area. After all, the cost of driver's education could be cheaper than the extra cost of your insurance. (Many insurers offer "good student" discounts as well.)

An adult's driving experience can also affect your rates significantly. Don't assume that every adult you know has been driving since age 16 or is a competent driver with a clean record. Again, taking a defensive driving course is a good way for adults to prove they are responsible drivers, thus lowering their risk and their insurance rates. (This is a great solution for new couples who are jointly insured but unmatched in their driving skills or experience.)

Question
How does where I live affect my auto insurance premium?

Answer
Where you live (or, more precisely, where you keep your car) has a bearing on your chances of having an accident or becoming a victim of theft or vandalism. That's why a vehicle owner in Brooklyn, New York, pays a higher rate than the owner of an identical vehicle in Casper, Wyoming.

Other factors affecting regional insurance rates include time and efficiency of police response and law enforcement, local road and traffic conditions and the quality of local medical services. Insurers even factor in the litigation rates in a given area, that is, how many lawsuits are filed, go to trial, are settled out of court and for how much.

Question
How long can I collect under a disability income policy?

Answer
Policy provisions vary, as do the premiums depending upon which provisions you choose. Generally the policy will specify a maximum period of time it will pay for a covered disability. Typical policy terms are for two years, five years, or to age 65. If during that time you recover from the disability and return to work, the policy will provide that a new disability will start a new benefit period. For example, if under a “five year” disability policy, you meet the definition of disability for three years, then return to work, the policy will have paid you three years worth of benefits. Four years later you suffer a new disability. For that new disability, your policy will pay benefits for up to five full years.

Question
How much life insurance should I have?

Answer
There are many and varied needs for funds upon the death of an individual, and all must be taken into account to arrive at a proper amount of insurance. For simplicity, some authorities recommend a good rule of thumb to be five times your annual income. Your Trusted Choice SM agent can talk with you about your needs and goals, and illustrate how each item translates into a given amount of funds needed at the time of death. He or she can also share how to account other sources of income (such as Social Security or retirement plans) that will actually lower the amount of life insurance necessary.

Question
How much property insurance do I need to buy for my business?

Answer
There is no one answer to this because each business is different. You can consult with your agent on the monetary limits needed to cover your potential for loss. Obviously, a one-person accounting firm will need to purchase less insurance than a store with a substantial inventory. But each will need to make sure that all necessary business property is covered, that the limits of liability are sufficient to protect the owner and the employees and that loss of income is protected.

In addition, each business has unique needs and situations that must be handled. If the store happens to be located on a flood-prone area, the owner should invest in flood insurance. The accountant may wish to purchase reconstruction-of-accounts-receivable insurance to cover the loss of accounting records. The costs of reconstructing those records, money borrowed because of delayed payments due to the records being lost, and lost payments from those clients whose records cannot be reconstructed are all covered.

Liability protection also will vary from business to business. A retail business is more at risk for potential suits than a business that is not open to the public. Also, in some states, courts tend to respond more positively to lawsuits, increasing both the likelihood of successful lawsuits and the amount of damages awarded. In today's lawsuit-conscious society, higher liability limits are extremely important and relatively inexpensive. Your agent can help you decide how much coverage is needed for your particular business.

Question
How much will I be paid for damage to my personal property?

Answer
Remember that homeowners insurance is designed to cover general personal possessions, not valuable collections like antiques, jewelry or original art. Insurance companies deliberately limit their coverage of expensive possessions so that household premiums are more affordable to everyone. After all, if they had to cover museum-level art collectors under standard homeowners policies, we would all end up paying higher premiums to cover those expensive items.

Your policy lists the specific monetary limits for personal property under what is called "Special Limits." Those limits usually are:

• $200 for money, bank notes, gold and silver (other than goldware and silverware), platinum, coins, and medals.
• $1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes (other than bank notes), manuscripts, passports, tickets, and stamps.
• $1,000 on watercraft, including their trailers, furnishings, equipment and outboard motors.
• $1,000 on trailers not used for watercraft.
• $1,000 for loss by theft of jewelry, watches, furs, precious and semiprecious stones.
• $2,000 for loss by theft of firearms.
• $2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware and pewterware.
• $2,500 on property on the resident premises, used for business, and $250 on this property damaged or lost away from the premises.

If these limits seem low to you (maybe that engagement ring is worth much more than $2,500), you may wish to talk to your agent about additional coverage for specific items.

Question
I am a renter and live in an apartment with three roommates. Do we each need a policy?

Answer
Check with your agent. Usually, it is best if all roommates are on the same policy although it is possible for each to purchase his or her own coverage. If you do need to "go it alone," you alone receive the security of renters coverage.

Question
I am a renter, not a homeowner. Do I need insurance?

Answer
The same rule of thumb applies to renters as to homeowners. If catastrophe struck tomorrow, could you afford to replace everything you own? Or if you were sued, would you have enough money to pay legal fees and possibly settle the suit? If not, chances are you would benefit from the protection that renters insurance brings.

Renters insurance offers the same general personal property coverage and liability protection as a homeowners policy. Thus, your camera is insured while you are on vacation, and you are covered if your grandfather clock crashes into the apartment lobby's wall and leaves a gaping hole. In fact, most policies are surprisingly extensive and may include additional living expenses (also called loss-of-use coverage) if you are forced by fire or other damage to live elsewhere.

Question
I am a renter. Isn't my apartment covered under my landlord's policy?

Answer
No, the landlord's insurance covers damage to the building and the landlord's property, not your personal property or liability. Plus, you may be liable for damage to the building if it is your fault. If you go out and leave the stove on and an ensuing fire causes extensive damage to the entire building, you may be held liable to the landlord.

Question
I don't have any major business assets. Why do I need business insurance?

Answer
Every business has some property. And, when you think about it, your business is your property. Just like your home and your car, your business needs to be protected from loss, damage and liability. In addition, your business is your source of income, so you need protection from the potential loss of that income.

Generally, there are two types of insurance—property and liability. Property insurance covers damage to or loss of the policyholder’s property. And if somebody sued for damages caused by you or your possessions (other than a vehicle covered by your insurance policy), the cost of the suit—both defending it and settling it, if necessary—would be covered by your liability insurance.

Question
I just signed a 3-year lease to open my business. Why does my insurance agent want to see my lease?

Answer
Whether the business lease is for a building or for equipment, your agent needs to determine who is responsible for insuring the leased items—you or the lessor. For leased buildings or building space, there are other factors to be considered, such as who is responsible for plate glass coverage and whether your landlord requires tenants to carry minimum amounts of liability insurance, and the extent of a hold harmless agreement. These and other situations covered in the lease affect the amount and kinds of insurance you need.

Question
I keep one auto strictly for business. Do I need a separate policy?

Answer
Yes. Whether you have one vehicle or several, you will need a business automobile policy. Such a policy covers any motor vehicle used in your business including cars, vans, trucks and trailers pulled by trucks, and offers coverage if they are damaged or stolen. It also covers liability if the business vehicle is in an accident and the driver is at fault. This policy is not for truckers or commercial garages. They have special liabilities and must secure special policies that deal with their different needs. Businesses that have a fleet of vehicles will of course have different needs than a business with one or two, and their policies will reflect these differences.

Question
I know I have that homeowners policy in a drawer somewhere. What exactly does it cover?

Answer
"Exact" coverage is hard to define because there are different policies. However, about 80 percent of homeowners policies are based on a standard form, which we described in this guide. All homeowners policies cover two important areas: property and liability. Remember that you have to have protection against the proverbial thief in the night and the person who slips on your sidewalk by day.

What this means in insurance terms is that your homeowners policy has two basic components. It covers your structures and possessions—property insurance—and it furnishes protection against personal liability. Personal liability, as its name implies, means you are legally obligated to pay money to another person for actions caused by you, your family, or your property. That liability extends to medical payments to others for injuries caused by you or your family.

Question
I own a condo. How is my policy different?

Answer
Condo owners insurance covers the same general areas outlined throughout this guide for homeowners in the important areas of personal property and liability. In addition, condo owners insurance provides coverage for some situations specific to condominium unit owners.

Usually, the condominium association buys insurance to cover the property (building and structures) and liability coverage for the general association. If you own a condominium unit, you may be responsible for covering from the "walls in" on your unit, that is, for your personal property and the interior of your unit (whatever area is excluded from the condo association's policy) as well as for your personal liability.

Sometimes, condo owners are assessed by their condo association for losses "outside the walls" that were not completely covered by the association's policy. For example, if the clubhouse is destroyed and the condo association did not have it insured, you could be assessed for a "share" amount needed to replace it. If you wish, check with your agent about adding such "loss assessment coverage" to your condo owners policy.

Question
I rent out my basement. Are my tenants covered by my homeowners policy?

Answer
No. Your property and the structure (the basement) are covered by your policy as is your personal liability. However, the tenants' possessions and liability are not covered by your policy. Therefore, they may wish to purchase their own renters insurance. Whether you are a lessor or a renter, you should check with your agent to make sure you have the right coverage.

Question
I run a dry-cleaning business. What happens if fire destroys many of my customers' clothes that were stored in the building?

Answer
The standard businessowners policy contains coverage for loss due to fire, including coverage for property of others the insured business was repairing, storing, or otherwise servicing earn money. The coverage only applies, however, if the business is legally liable. Thus, if lightning causes the fire, the business is not responsible because lightning is out of the control of the business owner. There are other policies, called Bailee’s policies, which provide even broader coverage for your customers’ possessions. A Bailee’s policy is often useful to help maintain good customer relations.

Question
I work out of my home. Are my inventory and business property covered?

Answer
Yes, but within certain limits. Both are covered as personal property used for business purposes. However, like all personal property, there are monetary limits on reimbursement. Whether your home business is your primary occupation or a hobby that nets you a few hundred dollars a year, it is still a business and you should treat it as such. If you've invested quite a bit in equipment (woodworking tools, for example) and sell the occasional decoy, you should consider whether the personal property limits are sufficient.

Also, keep in mind that the personal liability protection in your homeowners policy does not extend to business liability. Check with your agent concerning your business insurance needs.

Question
I work out of my home. Will my homeowners insurance cover my business?

Answer
Yes, but on a very limited basis. Loss of business property is usually reimbursed up to $2,500 in the house and up to $250 for business property damaged or lost away from the premises. Even if your business is a sideline such as a craft studio, these limits may be too low to cover all the equipment and materials you have accumulated. It’s also important to know that no business liability coverage is included in a standard homeowners policy. Your agent can help you ascertain what, if any, additional coverage you need. This additional coverage may be added to your homeowners policy or found in a separate commercial policy.

Question
If I need to cash in my life insurance at some point, how much will it be worth?

Answer
If your policy is term insurance, it will have no value. Term only provides a death benefit. If your policy is permanent insurance, you will be eligible to receive the current cash values contained in the policy, whatever they may be at that point in time. Your agent will be able to show you sample charts illustrating your policy’s anticipated values for any particular year after your policy is issued.

Question
If term life insurance is less expensive, why buy permanent?

Answer
There are many reasons. As food for thought, here are three of the key considerations:

• Permanent insurance will always be there. Some final expense needs are permanent, and only permanent insurance is guaranteed, assuming you pay the premiums, to be there when needed. Term insurance, by its nature, is temporary, and at some point will become nonrenewable. In fact, a good life insurance “rule of thumb” is to buy permanent insurance for permanent needs (funeral, burial, estate liquidity), and term insurance for temporary needs (mortgages, college costs).
• Permanent insurance premiums are fixed for life. While the premium may be higher at younger ages than term, it will never go up. And that can be a great comfort upon reaching older age and not having to face the possibility of your term insurance premium increasing beyond your ability to pay, possibly at the very time you need your insurance the most.
• Permanent insurance builds cash values. During those early years of your policy, when your “lifetime average” premiums are higher than the death cost, that extra money is set aside to help cover the higher death costs in later years. But in the meantime it is put to good use. In effect, it becomes a form of “savings account” inside your life policy. This “cash value”, as it grows, can be used as the basis for a loan from the insurance company, used to pay premiums if necessary, or taken as a cash settlement in the event you cancel the policy.

Question
I'm just getting my business started. Do I need business insurance right away?

Answer
Yes, because the chance that you could suffer a loss begins with the first day of business. You can’t get help after the fact. If you suffer a loss and have no insurance or have improper or insufficient coverage, there is very little, if anything, your agent can do to help you. You must be prepared for the risks that are inherent in any business and the losses, sometimes catastrophic, that they can cause.

Also, many states and local jurisdictions require that businesses be insured to begin operating. And if you rent space for your business, your landlord probably requires that you be adequately insured as well.

Question
Is business insurance coverage different for different businesses?

Answer
It can be. Many small businesses are now insured under package policies that cover the major property and liability exposures as well as loss of income. A common package policy used by many small businesses is called the Businessowners Policy (BOP).

Generally, these package policies provide the small business owner more complete coverage at a lower price than separate policies for each type of insurance needed. Your agent can help you decide which policy or policies are right for your business. Additional coverage for property, liability or perils or conditions otherwise excluded (e.g., flood protection) can be purchased as endorsements to a standard policy or as a separate, second policy called a difference-in-conditions (DIC) policy.

Because businesses vary, it is impossible to have a standard policy to cover all contingencies. Also, some businesses, regardless of their size, do not fit the profile of a standard businessowners policy. For example, restaurants, wholesalers and garages have special liability needs that are not met in the standard businessowners policy. Your agent can advise you of the best policy (or policies) to protect you and your business.

Question
Is credit given for approved safety courses?

Answer
Yes. Credit toward the premium is in the range of 2%-5% is available.

Question
Is there anything I can do to lower my homeowner premiums?

Answer
Because your premium is based partly on the level of risk the insurance company must take, there are things you can do to lower your premium. Installing deadbolt locks (to discourage theft), fire extinguishers, smoke alarms, and burglar and fire alarms that alert your local police and fire stations can often save you up to 15 percent on your premium. Check with your agent before purchasing any of these items to see if your insurance carrier has specific requirements to qualify for the discount.

Many insurers also offer discounts if you insure both your home and automobile with the same company. Another way to save may be to increase the deductible on your homeowners policy. If your deductible is $100, it means that you agree to pay this amount first, and your insurance company will pay for damages that exceed this deductible. By increasing your deductible from $100 to $250, or even $500, this decreases the insurance company's risk, which may mean a savings in your premium.

Also, it pays to shop around for insurance coverage just like anything else. Of course, you may want to keep in mind that the extent of coverage also determines the premium cost so the cheapest policy is not necessarily the best. Your agent can help you evaluate the different policies and companies to find the one most suitable for you.

Question
Is there forfeiture risk for the employer too?

Answer
Under The Uniform Coverage or "Risk-of-Loss" Rule, the entire amount of the employee’s annual election must be available at any time during the "period of coverage". The uniform coverage requirement, sometimes called the "risk-of-loss" rule, requires health care expense FSAs to operate like insurance plans, rather than mere reimbursement accounts.

The risk to employers under this rule is that an employee could claim his entire annual election amount early in the year and then terminate his employment.

Question
Is trailoring covered?

Answer
Yes. Coverage is afforded when the boat is in and out of the water, including trailoring.

Question
Just what are flexible benefits anyway?

Answer
A flexible benefits plan is one in which a wide array of benefits are offered, with varying levels of coverage available for each type. Employees are allowed to choose between benefits as well as between levels of benefits. A flexible benefits plan often includes a "cafeteria plan", also known as a Section 125 plan, which allows health contributions and deposits to flexible spending accounts to be made with pre-tax dollars.

Question
Liability coverage

Answer
Covers losses that result when an individual causes accidental injury to another person or damage to their property. If you accidentally set fire to your neighbor's garage while burning leaves in your yard, this is the type of coverage that would apply. Liability insurance often includes coverage for defense costs in a liability lawsuit.

Question
Loss of rents coverage

Answer
If a loss covered by the policy damages the part of a dwelling that is rented to others, we will pay for the loss of normal rents resulting from that dwelling not being fit to live in or use. Sometimes referred to as "fair rental value."

Question
Must I be disabled for a certain length of time before my disability benefits begin?

Answer
Typically a disability policy will provide for some length of time the disability must last before benefits begin. This is usually referred to as a “waiting period.” Similar to a deductible under major medical insurance, the purpose is to avoid paying benefits for minor injuries or illnesses, thus saving the insurance to apply to major times of need. The length of the waiting period can vary, and usually you will have several options. Clearly the longer you are willing to wait, the lower the premium. Your agent can discuss your available options with you.

Question
My business requires that I store gasoline on the premises. Do I have to have special insurance?

Answer
Yes, if your business transports, stores or uses toxic materials, you are required by law to have a special environmental liability policy. If these materials should be discharged accidentally into the water or leak onto the ground due to a covered peril like fire, the cost of extracting the pollutant from the business premises is covered up to the dollar amount set forth in the property section of your policy.

Question
My homeowners insurance is part of the payment I make each month to the mortgage company. Who decides what insurance to get?

Answer
You do. It’s your home and your insurance policy. As a means of protecting its investment, the mortgage company collects a set amount from you each month, puts it in escrow, and then pays your insurance and taxes when they fall due. However, the policy is still yours and you may select the insurance you feel offers the best coverage at the best rates. In fact, if you allow the mortgage company to choose, you might well end up paying more for your homeowners insurance.

Question
My mother lives with us in a separate in-law suite. Are her possessions covered?

Answer
As a member of the family, she is probably covered under your homeowners policy. So too is your child away at college covered for personal liability or theft or damage to his or her property even in the dormitory or college apartment. However, you should check with your agent to be sure of the extent of coverage.

Question
Named peril coverage

Answer
Named peril policies specify the perils, or causes of damage, which are insured against as distinguished from "All-risk Insurance"

Question
Now that my business is established, I think it is time to offer my employees some benefits. What do I need to know?

Answer
Employee benefits generally include health insurance (sometimes including dental and vision benefits), term life insurance, and possibly a retirement program. Group disability insurance is also available, although employers and employees opt for this benefit less frequently.

Employers can provide coverage for their employees alone or for the employees and their families. Cost is usually the determining factor. With the high cost of health insurance in the United States today, employers are more likely to ask employees to pay some or all of the costs of health insurance for their families and sometimes for the employees themselves.

Depending on the size of the group to be insured, the business may serve as the policyholder for the group’s insurance. However, for many small businesses, the insurer will pool them together in a multiple-employer trust. The trust itself, rather than any single employer, is the policyholder. This enables smaller businesses to benefit from the lower premiums and other services enjoyed by large groups.

Small businesses can also sometimes obtain employee benefit insurance through their trade or professional association. Your best bet as a small business operator is to find a way to join a larger pool seeking benefits. Check with your agent on the options available to you.

Question
Open peril coverage (also called "comprehensive coverage")

Answer
See All-risk

Question
Other structures

Answer
This coverage insures other structures you own on your premises which are separated from the dwelling or connected to your dwelling by only a fence, utility line or some other similar connection.

Question
Personal Property or Personal Effects

Answer
Things you own that you use to set up your rentals, such as refrigerators, stoves, or furniture. Personal property includes everything except land, buildings and any other structures attached to the land. Personal property may also be called "contents."

Question
Scheduled policy option

Answer
This option allows you to place all your rental properties on the same policy.

Question
What about floods, earthquakes and other catastrophes?

Answer
Most catastrophes are covered; for example, wind damage from hurricanes and tornadoes come under the windstorm peril listed in the previous question and so are included. Flood and earthquake damage, however, are not covered by a standard policy.

Be careful not to be lulled into a false sense of geographic security. Flood and earthquake activity is more widespread than many people realize. For example, almost 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire.

You may want to check with your agent about special catastrophic policies for normally excluded conditions like floods and earthquakes. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.

Question
What about our vacation home in the next state?

Answer
Insurance companies can operate in more than one state so the company that carries your primary residence may issue a policy for your vacation home. Personal liability is covered in the first homeowners policy so the second policy need cover only property. This type of policy is called a "dwelling policy."

If you rent out your second home for all or part of the year, your homeowners policy may need to be endorsed (added to) to cover the increased liability exposure. The renter's property is not covered under your dwelling policy. Should damage occur while someone is renting your property, they will need to check with their own agent about their coverage.

Question
What about the cars and truck that I have in my business? Is the coverage like what I have on my personal car?

Answer
Yes, but in addition to covering the vehicles you own for liability, medical payments, uninsured motorist coverage, comprehensive and collision, it also covers you when you rent a car and when your employees are operating their personal cars for your business. Be sure to review your auto exposures with your agent.

Question
What actually happens when I report an auto accident?

Answer
After an accident, you should call your agent as quickly as possible, to help you complete a claim form, determine what exactly happened and evaluate any damages or injuries. Your agent then will contact your insurer's claims adjuster—usually within an hour of your report—whose job is to work with you to fix the problem. While compensating you for auto repairs or medical expenses is easy and immediate, determining liability is more complicated. The adjuster will begin the settlement process, the length of which will depend on the cooperation of the other party.

The amount of compensation for your loss can vary according to the adjuster's analysis of the damage. You do not have to accept the first amount of money you are offered, if it is lower than the cost of your repair or recovery. While you may have to do some homework to prove your reported loss is valid, it's worth it to be certain your insurer lives up to the provisions of your policy.

Remember, negotiating with an adjuster is just business. Insurers simply want to settle claims fairly in light of possible fraud. While it is your insurer's responsibility to root out false claims, you pay the price in the end. In fact, you spend nearly a dime on every dollar of your premium to cover the false claims of others. So, try to keep an open mind when working with your adjuster to settle on a price that's fair to both you and your insurer.

Question
What are the different types of auto insurance policies and what do they cover?

Answer
Auto insurance is divided into several types of coverage:

• General liability covers damage you cause to other people's property and injuries to the people themselves.
• Collision covers damage to your own vehicle in an accident.
• Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.--unless the vehicle is overturned, then it is considered a collision).
• Medical insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This "good-faith" coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friend's car.
• Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.

Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or “endorsements” to your policy.

Question
What are the election requirements under Section 125?

Answer
Benefit elections must be irrevocable for the duration of the plan year, with an exception made for specific changes in family status. The qualifying changes in status are:

• Marriage;
• Divorce;
• Death of a spouse or a child;
• Birth or adoption of a child by the employee;
• Termination of a spouse's employment;
• Commencement of a spouse's employment;
• Change from part-time or full-time employment, or vice versa, by either the employee or the employee's spouse;
• The taking of an unpaid leave of absence by either the employee or the employee's spouse;
• A significant change in the employee's or the spouse's health coverage that is attributable to the spouse's employment.

Question
What are the enrollment requirements under Section 125?

Answer
Participant elections (enrollment in the benefits of their choice) must be made prior to any taxable benefits under the plan becoming currently available. This usually means before the beginning of each plan year.

Question
What are the major types of individual health insurance policies?

Answer
There are many variations of health insurance policies. The two most common are major medical and disability. Your agent can share other, more specialized types of coverage.

Question
What are the nondiscrimination requirements under Section 125?

Answer
A cafeteria plan must pass three types of discrimination tests: eligibility, benefits and concentration.

Eligibility test: Plan will be considered nondiscriminatory if 1) the plan uniformly benefits all employees in the classes designated as eligible to participate, and is not found to discriminate in favor of highly compensated employees; 2) the "waiting period" for eligibility cannot be longer than 3 years and the waiting period is the same for each employee; 3) the effective date for coverage is no later than the first day of the plan year beginning after the satisfaction of the eligibility waiting period.

Benefits test: Under the safe harbor rule for cafeteria plans covering health benefits, a plan is not discriminatory is the employer contributions, including salary reductions, on behalf of each employee equals 100% of the health benefit cost for the majority of highly compensated participants; or 75% of the cost of the most expensive health benefit coverage elected by any similarly situated participants.

Concentration test: A cafeteria plan is nondiscriminatory if the nontaxable qualified benefits provided to all employees under the plan is at least 75% of that provided to key employees. This calculation can be based on the premium value of the coverage provided, rather than on actual benefits or reimbursements received.

Question
What are the requirements for Section 125 plans?

Answer
The principal requirements to qualify under Section 125 are to adopt a written plan document, all participants must be employees, contributions must be made through salary reduction agreement, and the plan must meet the nondiscrimination, election and enrollment requirements specified under the Code. In addition, an annual IRS Form 5500 must be filed for the plan.

Question
What do I do when my property is damaged or stolen?

Answer
Contact your agent as soon as possible. If there is damage to your home or possessions, make "emergency" repairs to protect yourself and your property from further damage, then call your agent. For example, if some of the windows in your home have been blown out by wind, you may board them up to prevent additional damage. In fact, your policy covers the cost of these emergency measures.

However, before setting about to make permanent repairs, call your agent. The insurance company has the right to inspect the property in its damaged condition. They may want to send a claims adjuster or instruct you to get an estimate from an independent contractor.

If you have property stolen, notify the police immediately and call your agent.

Question
What does “coinsurance” mean in a health insurance policy?

Answer
In a health policy, coinsurance represents the percentage of the medical bills the insured will be responsible to pay after the deductible is met. For example, if your policy is “80% coinsurance”, then once the deductible is met, the insurance will pay 80% of covered medical bills and you pay 20%. Typically there will also be a provision called a “stop-loss”, which is basically a maximum amount you will ever have to pay out of your own pocket for covered medical bills. For example, let’s say your policy states it is “80% coinsurance, with a $1,000 stop-loss.” Once you’ve paid your deductible, your covered medical bills are $7,000. Here’s how that would work: First, the coinsurance provides the carrier will pay 80% of the $7,000 ($5,600) and you will pay 20% ($1,400). But, your “stop-loss” says your maximum payable for this claim is $1,000! So you only pay the $1,000, and the additional $400 comes from your insurance company. Notice this provision gets more valuable as the claim gets larger—no matter how large the final claim, or what percentage of coinsurance you’ve purchased, your stop-loss says your share of the covered expenses will never exceed $1,000.

Please note some polices refer to “stop-loss” as “maximum out-of-pocket”. And many polices include the amount of the deductible in determining when you hit your maximum, also a helpful provision.

Question
What does “disability” mean?

Answer
In its simplest sense, it means you are unable to work. But it’s important you realize the definition of the term under a given disability income policy will be specified by that policy. The broader the definition of disability, the higher the cost and increased limits to the underwriting restrictions. For example, some policies will define “disability” to mean “the inability to reasonably perform the duties of your occupation,” while another will define it as “the inability to reasonably perform the duties of any occupation”. How significant is this difference of a single word? To use an extreme example, if you were a highly trained surgeon, the first policy would pay you if you were sufficiently injured that you couldn’t perform surgery. The second would refuse to pay if you could perform any job—even sweeping floors or answering phones. Despite the obvious loss of income when going from surgeon to receptionist, the policy definition of disability will determine whether you will receive benefits for specific policy. As you might guess, the second policy is likely to be great deal less expensive. Also, you can see your current occupation is the single most important factor in determining what type of disability policy and coverage options you will be eligible for.

Question
What does a disability income policy do?

Answer
Disability income is a form of health insurance that is designed to provide you with an income during the time you are unable to work due to illness or injury.

Question
What does Hull Value include?

Answer
The Hull Value includes the actual value of the boat and motor and/or engine, plus any fixed equipment. The value of the trailer should not be included in this figure.

Question
What happens to unused amounts in an employee's FSA account when employment is terminated?

Answer
You should be aware that COBRA applies to FSA's too. How the balance remaining at termination is treated depends on whether the employee elects or waives COBRA. If he/she elects COBRA, they are required to remit the monthly deposit directly since payroll deductions can no longer occur. This means depositing after-tax dollars and you might think that no one in their right minds would want to do that, but read on ...

If COBRA is elected, then the "period of coverage" for that employee continues and they can continue to submit claims. If COBRA is waived, then only claims for services incurred before the termination date can be submitted. Now, if you have a large unused balance in your account when you leave your job and no unsubmitted claims, you might want to elect COBRA, even though you lose the tax advantage, just to avoid leaving that money on the table.

Caution: COBRA people must have the same rights as other participants, and so when enrollment time comes around, they must be given the chance to re-enroll in the FSA, if their 18 months are not up yet, as well as change the amount elected.

If COBRA is waived, then the unused portion of the account is forfeited, after all claims incurred prior to separation have been submitted. This is the "insurance risk" required by the IRS in exchange for the special tax treatment, commonly known as the "risk of loss" rule. This can also go the other way in the case of Medical FSA's: imagine your employee elected $1200 for the year, deposited $100 in Jan, claimed $1200 in Jan, and terminated Feb 01 ... the company just forfeited $1100.

Finally, you may never just distribute the money to the employee. You would risk disqualification of your plan.

Question
What happens when I loan my car to someone? Is that person covered by my policy? Am I still covered?

Answer
Yes. Liability and coverage for physical damage (i.e., comprehensive and collision) always follow your car. So, if a friend borrows your car and has an accident, you're still protected against the cost of damages or injuries. Plus, if the driver of your car is insured, his/her policy will also be available to cover the cost of damages and injuries.

The same rules apply when you borrow someone else's vehicle. Your own insurance follows you no matter whose car you are driving. But the vehicle owner's policy is the key coverage if you have an accident.

Question
What if I am sued or found liable for injury to another person?

Answer
Liability covers bodily injury and property damage to others due to your negligence. The coverage applies to non-auto accidents that occur either at your residence or off the premises. Medical expense payments such as first aid can also be due to the injured party. Should you be sued or suspect that you may be, contact your agent immediately.

Question
What if I want to go to any doctor or hospital I choose?

Answer
You can buy health insurance which basically says “go to whomever you want and have them send us the bill” (often referred to as “indemnity” coverage), but it lacks the negotiated cost discounts and overview of services (meant to dissuade providers from over treating and over billing) that PPOs and HMOs utilize to try and keep costs lower. Thus an indemnity policy may be readily available to you, but may be significantly more expensive than a coverage plan utilizing a PPO or HMO. Ask your agent for your options and possible premiums, and then choose the coverage method that best meets your personal preferences and needs.

Question
What if the clothes I manufacture are damaged in shipment. Does the shipping company reimburse me or do I put in a claim to my insurance company?

Answer
Shipping companies often carry insurance to cover their losses. However, the shipping company’s insurance may be too low or you may have difficulty collecting on a claim after signing for the shipment. Therefore, “property in transit” insurance is available to cover your property being transported by truck, rail, ship or other means of shipment. Also, the firm you hire to transport goods and the contract you sign with them may affect your need for coverage. Make sure you check with your agent.

Question
What is a Flexible Spending Account (FSA)?

Answer
FSA’s also fall under Internal Revenue Code Section 125, due to their special tax treatment. There are two types of flexible spending accounts. The purpose of both is to allow certain expenses to be paid by the employee with pre-tax dollars. The Health FSA is for health and dental expenses that are not covered by insurance, such as deductibles, co-pays, co-insurance amounts and non-covered items, such as eyeglasses. The Dependent Care FSA is for qualifying child care expenses. With both of these accounts, the employee elects to defer a certain dollar amount tax-free each pay period into his account. When expenses that qualify for reimbursement occur, the employee submits a claim to his FSA account and the amount is paid out without being taxed. The Flexible Spending Accounts (FSA’s) offer much the same tax saving advantages as the Premium Conversion plan. However, there is an administrative component for the employer to assume involving the administration of claims. This can be easily out-sourced at a low cost. If the plan is properly designed and implemented, the savings generated typically more than cover the cost, with a net savings left over for the employer.

Question
What is a HMO?

Answer
This stands for “Health Maintenance Organization”. Unlike a PPO network of independent care providers, HMOs are typically fixed facilities, and benefits are designed to cover services obtained at the HMOs facilities and supplied by HMO personnel. HMO coverage plans must specify how and under what circumstances services may be obtained from non-HMO providers, and this information is crucial to determining the value of the HMO under your particular circumstances. Your agent can assist you in determining whether there are good HMO options available in your area, their benefits and any limitations for you to consider in making your final medical coverage choices.

Question
What is a major medical health insurance policy?

Answer
This is the most common form of individual or group health insurance is a major medical health policy. It provides benefits for sickness or injury, regardless of whether the care is provided at a doctor’s office, clinic or hospital. The types of sickness and injury covered are typically broad, although there are always limitations that should be discussed with your agent prior to purchasing the coverage. Major medical policies normally have an annual deductible and a lifetime maximum amount of benefits that will be paid.

Question
What is a PPO (preferred provider organization)?

Answer
A PPO is a group of hospitals and physicians that contract on a fee-for-service basis with employers, insurance companies or other third party administrators to provide comprehensive medical service. Providers exchange discounted services for increased volume. Participant’s out-of-pocket costs are usually lower than under a fee-for-service plan.

Question
What is a PPO?

Answer
This stands for “Preferred Provider Organization”. Basically, this is a network of health care providers who have agreed to provide certain services at agreed-upon costs for individuals whose coverage is a part of the network. (Some suggest it is best described as a discount-buying club for medical care.) You are free to use any medical provider within the network, and all will honor the agreed services and fees. If you choose to use a provider who is not an approved member of the network, your coverage may be diminished, your personal cost higher or, in some cases, benefits for non-emergency services may be totally denied. Be sure to discuss with your agent if your coverage will utilize one or more PPOs, who are the current approved providers, and how utilizing an out-of-network provider will affect your coverage.

Question
What is a Premium Conversion plan?

Answer
Also known as a Premium Only plan, or a POP, a premium conversion plan is a type of Section 125 plan where the only benefits accorded the pre-tax treatment are the employees contributions toward health life, dental, vision care, prescription drugs and disability, although the wisdom of including this last type is debatable. A Premium Only Plan (POP) is one of the easiest cost savings measures to implement. The employees do not pay federal income tax or FICA taxes on their contributory share of the premiums, and some states also exempt the contributions from state income tax. The employer gains increased employee awareness and appreciation of the benefits portion of their compensation package, is excused from matching FICA taxes and state and federal unemployment taxes, and is not required to take on significant additional costs or burdensome procedures.

Question
What is a Section 125 plan?

Answer
A Section 125 plan, also legally known as a "cafeteria plan", allows health contributions and deposits to flexible spending accounts to be made with pre-tax dollars, within guidelines established for such plans in Internal Revenue Code Section 125.

Question
What is adverse selection?

Answer
Adverse selection occurs where plan participants select against the program by choosing only those benefits that they are most likely to use or exchange those benefits that they are least likely to use for cash or other benefits. For example, an employee who has opted out of dental coverage for years discovers that his child needs braces and elects dental coverage.

The problem with adverse selection is that if it is left unchecked, it will increase the cost of a flexible benefits plan. There are a number of ways to negate the effects of adverse selection and the flexible benefits experts agree that adverse selection need not be a problem, it just needs to be planned for and dealt with.

Question
What is an HMO (health maintenance organization)?

Answer
An HMO is a pre-paid medical group practice plan that provides a comprehensive predetermined medical care benefit package. The HMO can be sponsored by the government, medical schools, hospitals, employers, labor unions, consumer groups, insurance companies and hospital-medical plans. HMO’s are both insurers and providers of health care.

Question
What is coinsurance all about? Do I need it for my business?

Answer
Most business policies include a “coinsurance” clause stipulating what percentage of the total value of your property must be insured to be fully reimbursed for a loss, even a partial one. (Most losses are partial.) If you insure for less than that amount, your insurance company may impose a “coinsurance penalty” on your claim.

Here's how coinsurance works:

Let’s say you have a building insured that you believe would cost $100,000 to replace and a coinsurance penalty in your policy of 80 percent. You insure the building for $80,000, thinking you have fulfilled the coinsurance clause. A fire loss causes $60,000 worth of damage, so you submit a claim. Your insurance company subsequently determines that the replacement cost of the building is actually $150,000. To determine how much to pay on the claim, the insurer divides the amount of insurance you purchased ($80,000) by the amount you should have purchased (80% of $150,000 or $120,000). The result (two-thirds of $60,000 is $40,000) is the amount of your claim the insurer will pay.

Thus, even for a partial loss within the monetary limits of your policy, you will receive only two-thirds of the amount claimed. If the building had been insured for at least $120,000, the insurer would have reimbursed you for the full amount of the loss.

You should check with your agent to make sure you have adequate coverage. Adding an endorsement to the policy that automatically increases policy limits to keep pace with inflation is a good idea.

Question
What is cost-shifting?

Answer
Cost shifting by employers is accomplished through policies designed to shift the relative burden for health care costs borne by one party to another. For example, employers shift a portion of the costs of care to employees by deductibles, copayments, coinsurance, and contributions.

Question
What is life insurance?

Answer
When a person dies, there are many expenses that will need to be paid. These expenses may include such items as funeral costs, burial expense, current bills, and estate taxes. In addition, there may be financial needs the insured would have met if they had remained alive, including family living expenses, mortgage payments, long-term debt, and college costs for children. A life insurance policy’s primary function is to provide, upon death of the insured, an amount sufficient to pay for any or all of the preceding costs and expenses. Which expenses or costs are to be provided for, and how much money will be needed is entirely up to the insured.

Question
What is no-fault insurance?

Answer
No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guy's fault.) No-fault simply does away with the concept of one party or the other being at fault. There are no lawyers, no court, no judge, no jury, no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.

If you are insured in a no-fault state and have an accident, you don't go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.

Question
What is non-duplication of benefits?

Answer
Non-duplication of benefits is a growing cost-containment trend, as an alternative to the standard coordination of benefits (COB). With non-duplication of benefits, when a plan is a secondary payer, it will only pay that amount which would have been paid if it had been primary. In other words, if your spouse’s plan pays at 50% and yours pays at 80%, then your plan would make up the difference between 50% and 80% coverage, because it would have paid 80% if your spouse did not have other coverage. This is different from COB which pays whatever the first plan did not, up to 100% of the claim.