High Limit Disability Insurance

“The highest paid player on an NFL team is the quarterback and the second highest paid player is the left tackle because the left tackle’s job is to protect the quarterback from what he can’t see coming”
The is the opening monologue from the film “The Blind Side”.

A study by the University of Colorado performed in 2007 said that the career of a pro football player is about 3.5 years. Baseball players are slightly better at 5.6 years. An athlete may have to quit, when, for example, in the case of Joe Theismann, a 250 pound line backer falls on his leg.  Did he have High Limit Disability Insurance?

What does a player do when he cannot play in games anymore but he has acquired a life of luxury due to his high income? Unfortunately many athletes listen to bad advice and make bad investments. A report in Sports Illustrated stated that 70% of all professional athletes are either broke or have hit hard times within 5 years of ending their playing days.

Professional athletes often need High Disability insurance for:

  • Personal Disability
  • Contract Guarantee
  • Team Indemnification
  • Loss of Endorsement

Here are some examples:

Auto Racing:

“A client is rated based on the type of motor sport, class and medical history” says Adam Bates, vice president of Insurance Services of America, which offers niche insurance including health coverage for amateur and professional racers. “I usually recommend an Accidental Death and Dismemberment Policy, as most life policies exclude racing”.

Laura Hauenstein, president of WSIB Motorsports Insurance, which insures racers, says some of the agents familiar with motor sports will use the Internet to research the driver. If they find they have a history of crashing, rates can be higher.

WSIB offer worldwide 24 hour coverage on and off the track with varying deductibles and multi-year policy terms;

Benefits are paid on a per race missed basis and/or weekly or monthly basis for a driver who due to illness or bodily injury is unable to drive in a race.

Temporary Disability benefits for periods up to 60 months.  Permanent Disability benefits are paid in a lump sum to compensate for future loss of income.

Professional Baseball:

This is an intense contact sport requiring optimum physical health. A player’s ability to perform could be jeopardised due to either overuse or trauma, such as: muscle strain and meniscus tears; hand and wrist injuries; tendinitis, especially of the elbow; rotator cuff tears; “dead arm” and ulnar collateral ligament tears.  In these scenarios, the athletes need High Limit Disability Insurance.

A Disability Insurance Plan for Professional Baseball Players can provide monthly benefits from $1,000 to $100,000 or higher and offer lump sum benefits of $50,000,000 or more.

Injuries in other sports: offering similar benefits for disability:

Basketball:

  • ankle sprains, ligament tears and breaks;
  • knee and foot injuries;
  • muscular tears, sprains and breaks;
  • jammed fingers;
  • stress fractures;
  • deep thigh bruising.

Football:

  • knee injuries including ACL damage
  • concussion and other head injuries;
  • sprains, tears, broken bones, especially to the legs

Hockey:

  • concussion;
  • shoulder and elbow injuries;
  • wrist fractures;
  • lower back injuries;
  • injuries to the hip

Soccer:

  • ankle sprains;
  • achilles tendonitis;
  • concussions;
  • iliotibial band syndrome;
  • muscle cramps;
  • delayed-onset muscle soreness;
  • patellofemoral pain syndrome
  • plantar fasciitis
  • shin splints
  • calf, hamstring and groin muscle pulls and strains.

These plans are used in a number of ways to insure the professional athlete personally or to insure the team of which the athlete is a member as to the financial losses that result from a disabling accidental bodily injury or sickness. Career length varies by the sport in which the athlete performs. Exceptionally high earnings are generated in a short time span making the adequate insuring of the earning potential a primary financial planning process.

Here are some of the uses of those plans:

1. Loss of Future Earnings

A professional athlete can anticipate income levels and probable playing time. A disability can affect the level of income to be earned in the future and a disability can shorten the career period. As an example, an athlete has no income assurance beyond the term period of the present contract. This plan can insure an income should disability shorten the expected career period.

2. Contract Completion

The loss of an athlete by disability puts the team in double jeopardy. Revenue may slip and the team must continue to pay the non-performing athlete. These plans can insure the contracted compensation to the athlete, thus relieving the team of the financial burden.

3. Loss of Endorsements

Endorsement income and fees continue to flow as long as the public remain fans of the athlete. A political statement, a drug involvement, a drunk arrest, a public relations blemish, and the advertiser/endorsers pull back from sponsorship. This loss is also insurable.

4. Cost of Agents/Managers

During periods of disability it is in the athlete’s best interest to continue the use of agents and managers to keep the athlete’s value as an athlete and as a product spokesperson keenly in the minds of those who contract for their services. These costs can be insured.

Key Person Insurance

Key Person insurance is an insurance policy taken out and paid for by a business which is then able to recoup any financial losses suffered, which may arise due to the death or extended inability of an important member of that business to perform his/her duties. Also known as trauma insurance, it is a standard life insurance policy which protects the business. Should a person who is an income generator die or become incapacitated, then with this cover, the business is compensated by means of a fixed monetary sum specified in the policy, which sum facilitates the continuity of the enterprise. The term of the policy does not extend beyond the usefulness of the individual whose knowledge, creativity and/or skills are critical to the viability or growth of an organisation, and whose loss may cripple it. The compensation amount may go towards financing the search for and training of a successor. (Source: Wikipedia)

Martha Stewart is the founder of Martha Stewart Living Omnimedia. In 2004 Stewart was convicted of charges related to the ImClone insider trading affair. When Stewart was indicted, she stepped down as CEO and Chairwoman of MSLO. Following her release from prison in March 2005, Stewart launched a much-publicized comeback. Some huge corporations have the luxury of having a key person to take charge during a severe but non-threatening illness, such as a non-fatal heart attack. When Roger Deromedi, CEO of Kraft Foods was hospitalised for a severe viral infection, the company’s chairman, Louis Camilleri took temporary charge, with no adverse effects to the company. Robert Robins, a professor emeritus at Tulane University said that a determining factor in planning for key personnel disability issues is the CEO’s personality and work style: is he willing to work with the board and senior management on a transition basis, even if an illness is not terminal but merely prevents him from performing his duties. The end of a career is the same as the end of life to some company leaders. Capitulation will be resisted in every way possible. When a CEO has a hands-on rather than a delegatory style, the situation is much worse. Founder and CEO of Intel, Andy Grove was able to carry on during treatment for life-threatening prostate cancer. He left the company at a time that was suitable to him and the corporation. He was later diagnosed with Parkinson’s Disease.

At SouthWest Airlines, shareholders’ questions about 69 year old Herbert Kelleher’s prostate cancer resulted in his relinquishing his interim presidency and CEO position in 2001, although he retained his chairmanship of the board. In today’s competitive business environment, protecting the value of a star executive is critical. Using markets once reserved for elite athletes and entertainers, carriers such as Lloyds of London have developed products designed to protect a company’s most critical assets. These carriers have the ability to deliver disability benefits up to $100 million for the loss of an individual whose vision, knowledge and experience are critical to a company’s operation and future. Why do so many risk managers ignore this exposure? The due diligence needed to secure life and disability coverage is not part of a risk manager’s culture. They may feel awkward going to the boss and telling him that he may be putting the company at risk because of his lifestyle or his health. It involves personal information and health issues and has the added risk of opening secret doors and having unpleasant news revealed. Fewer than 35% of the corporations that secure key person life insurance, secure the corresponding key person disability coverage.

Obviously there are daredevils like Richard Branson and risk managers are aware of his activities. It is far more likely a key person will succumb to a stroke or cancer or hit by a car, than is that they will be disabled or killed while sky-diving over the Pyrenees. International travel can be hazardous though. In a recent situation, a private equity firm made a significant investment in a defence contractor. Shortly after the investment closed, the company named a new CEO. With hundred of millions of dollars at stake, the private equity firm sought to hedge their investment by acquiring $50 million key person life and disability insurance. As of the day of the request, the insurance adviser had eight business days to secure the insurance before the CEO departed for the middle east, with stops in hotspots such as Iraq and Afghanistan. As a result of the abbreviated time frame, traditional life and disability insurance was not an option. The adviser needed to turn to a speciality underwriter that deals with exceptionally large and complex risks. Within 72 hours, a policy was issued that covered the private equity firm’s loss of the CEO due to an accidental death or disability, as well as a result of acts of war or terrorism. The premium was for $50 million insurance and cost $62,500, covering a 2 week period. Sickness cover was included for certain elements of the insurance policy. Few domestic life and disability insurance carriers possess the ability to underwrite high risk exposures to the world’s hot zones. Unfortunately, many times, risk managers and their insurance advisors do not look beyond traditional channels to secure the needed key person disability coverage for their clients, partly because the cost of key person disability coverage is far greater than the cost of term life coverage. However, the risk is proportionally greater . The impact top CEOs and corporate leaders have on the success of their businesses is almost unfathomable. If you think about how many companies are dependent on one or two individuals, risk managers may need to re-examine how they insure human capital risk.

Insuring body parts

As long as a person is willing to pay the required premium, anyone can insure a body part of their choice. The 40 members of the Derbyshire Whiskers Club insured their beards against fire and theft for $32 each. This is called speciality insurance and before an entertainment company or athletic club pays any high premium for mega income-producing stars or athletes, they would have obtained the maximum possible insurance via standard life and disability cover. Your finger that moves the trackpad on your laptop could be insured by you, however, buying disability in this instance would be more economical.

It is the norm for entertainment companies and athletic clubs to obtain speciality insurance for huge cash-earning celebrities, as well as high-income athletes. Real Madrid renewed the insurance policy for Cristiano Ronaldo, valuing his legs at a whopping 103 million Euros against serious injury. Goalkeeper and Real Madrid captain Iker Casillas has his hands insured for 7 million Euros. Certain speciality insurance companies will insure the insured’s whole body but exclude the part that is most at risk. Factors which are taken into account are yearly income, type of sport, age and injury history.

Ahead of the 2014 Soccer World Cup Germany’s squad was valued at an insurable amount of 795 million Euros. This research was produced by the Centre for Economic and Business Research for Lloyds. The amount is calculated as the discounted sum of players’ future earnings, both from endorsements, salaries and bonuses.

One of the earliest body part policies was taken out by Ben Turpin. He worked in vaudeville, burlesque and circuses in the 1920s. Turpin had a distinctive appearance, with a small wiry frame, a brush mustache and crossed eyes. He insured his eyes and would have collected $20, 000 if his eyes had gone straight. A man most remembered for his legendary drinking talents, Aussie cricketer Merv Hughes insured his handle-bar mustache for $370, 000 during his cricketing days as a member of the Australian national team. The Welsh baritone Tom Jones was rumoured to have insured his chest hair for $7 million. The geriatric crooner still has the power to make the ladies swoon and he apparently considers his luxurious pelt an essential aspect of his sex appeal.

Keith Richards is an English musician, singer and songwriter and one of the original members of the English rock band, the Rolling Stones. Rolling Stone magazine credited Richards for “rock’s greatest single body of riffs” on guitar and ranked him 4th on its list of 100 best guitarists. His hands are insured for $1.6 million.

Egon Ronay was a Hungarian-born food critic who wrote and published a famous series of guides to British and Irish restaurants and hotels in the 1950s and 1960s. These guidebooks are credited with raising the quality of British cuisine offered in public eating places. Ronay also championed foreign cuisine for British diners. He insured his influential taste buds for £250,000. (http://en.wikipedia.org/wiki/Egon_Ronay)

Sir Thomas Jones Woodward known by his stage name Tom Jones is a Welsh singer. He became one of the most popular vocalists to emerge from the mid-1960s. Tom Jones had his chest hair insured for £3.5 million in 2008. The geriatric crooner still has the power to make the ladies swoon and apparently considers his luxurious pelt an essential aspect of his sex appeal.

Ornella Muti was born in Rome. She is mostly known to the French for appearing in a television commercial of Giovanni Panzani Pasta. She was voted “The Most Beautiful Woman in the World” in 1994 by a worldwide poll of the magazine “Class”. She regards her breasts as her best asset and has insured them for $350,000.

James Francis “Jimmy” Durante was an American singer pianist, comedian and actor. His distinctive clipped gravelly speech, Comic language butchery, jazz-influenced songs and large nose helped make him one of America’s most familiar and popular personalities of the 1920s through the 1970s. His jokes about his nose included referring to it as a Schnozzola and this word became his nickname. His Schnozzola as he referred to it was insured for $442,000.

Angela Mount has unparalleled experience in the wine retail business. She is widely credited with revolutionising wine on the high street. She has been named as one of the top most influential people in the Wine Industry by The Drinks Business. Angela’s taste buds were famously insured for £10 million by former Somerfield bosses. Somerfield (originally Gateway) was a chain of small to medium-sized supermarkets operating in the United Kingdom.

Kenneth Arthur “Ken” Dodd, OBE, is an English comedian, singer, song-writer and actor. His trademark is his frizzy hair and protruding teeth. At the age of seven, he was dared by his school friends to ride his bike with his eyes shut. He accepted the dare, crashed, and received facial injuries which resulted in his distinctive buck teeth. He insured his trademark buck teeth for £10.6 million. (http://en.wikipedia.org/wiki/Ken_Dodd).

Robyn Rihanna Fenty – a Barbadian recording artist has an estimated net worth of $90 million. She has insured her legs for $1 million. Michael Ryan Flatley is an Irish-American dancer and became internationally known for Irish dance shows Riverdance and Lord of the Dance. In May 1989 Flatley set a Guinness Book world record for tapping speed at 28 taps per second. In 1998 Flatley broke his own record for tapping speed by achieving 35 taps per second, as well as a Guiness Book recognition in both 1999 and 2000 being the highest paid dancer earning $1.6 million per week and having the highest insurance policy on a dancer’s legs of $40 million. (http://en.wikipedia.org/wiki/Michael_Flatley)

Disgrace Insurance

Lance Armstrong’s doping scandal which culminated in his admission of guilt, has reminded companies of the potential importance of disgrace insurance as a risk management tool. He lost eight sponsors within a day.  Some sponsors took immediate action and some chose to let current deals expire.  Nike which had been an Armstrong supporter since 1996 was the first to announce it would be ending its sponsorship.  According to CNBC, one of the smallest sponsors to cut ties with Armstrong was Honey Stinger, a Colorado-based maker of honey-based nutrition food.  Other companies who cut ties with Armstrong was bicycle-maker Trek, Easton-Bell Sports, 24 Hour Fitness, operator of a national chain of health clubs, Anheuser-Busch, RadioShack and Oakley.

A corporate response to Armstrong’s scandal is hardly unprecedented.  Companies must be zealous about protecting their public image, and in some cases that objective leads companies to part ways with a disgraced athlete or celebrity spokesperson.  But, the decision to cut ties with a spokesperson can come with significant financial consequences.  In some cases, a company will have paid millions of dollars for an endorsement from the disgraced spokesperson, and the company might already have sunk significant sums into shooting commercials or print advertisements that will never see the light of day.  And, although sponsors may seek to recoup these losses through lawsuits against the disgraced spokesperson, such litigation is costly and may have the undesired effect of further highlighting the sponsor’s relationship with the spokesperson.

Oscar Pistorius, one of the world’s most in-demand sports personalities for marketers who couldn’t get enough of his inspirational back-story, athletic success and boyish good looks was estimated to receive endorsements worth more than $2 million a year.

Since news broke of the shooting of Reeva Steenkamp, Oakley has cancelled its contract and Nike has “no further plans” to use him in advertisements.  His endorsements stretched well beyond the footwear giant, taking in British Telecom firm BT and French designed Thierry Mugler.  The Icelandic company Ossur, that manufactured Oscar’s running blades has cut all ties with the first double amputee to run at the Olympics.

Whether an actor, athlete or other type of celebrity, anyone of lofty status can fall on hard times after taking a major PR hit.  Think Tiger Woods, Alex Rodriquez, Paula Deen and Oscar Pistorius one day they are riding the crest of fame and the next day they come crashing back to earth.

The important question here isn’t so much who or why but what is the collateral damage when a celebrity suddenly implodes?  For hundreds of companies across the world, that damage comes in the form of unwanted baggage now adorning their footwear, starring them in ads and smiling from their cereal boxes in every supermarket.

Disgrace coverage includes protection from unlawful acts and offensive statements by a contracted spokesperson whose image has been licensed on consumer items, and insurance for a commercial campaign that fails due to a disgraceful act.  This insurance entitles companies to reimbursement for money paid to secure the disgraced celebrity’s endorsement, hire a substitute spokesperson, reshoot or reproduce the advertising material, and remove the spokesperson’s image from product packaging.

When considering a disgrace insurance policy, there are a few important items to keep in mind.  First, if your spokesperson has a history of “issues” it does not necessarily mean you will pay more.  A disgrace policy usually does not include coverage for an insured person acting within their public persona, so personalities who are known to live on the edge are usually acceptable risks.

It is the clear and wholesome images that actually pose more risk.  For example, if Justin Bieber is caught doing or saying something crazy, no one is surprised.  When “clean, wholesome family man” Tiger Woods’ social life was revealed, however, that was a sudden shock to the community at large.

The policy’s definition of “disgrace” should also cover a wide swath – in practice it falls into a shadowy world where things are not always clear

Policyholders should make sure they clearly define terms broadly enough to indicate any misconduct that would adversely affect the company’s reputation.  A policy should have flexibility to match the morals clause in the advertising contract.  Policyholders also need to be conscious of time limitations.  Disgrace policies only cover the period of time related to an actual contract between the policyholder and the insured person.  Celebrity images on products can have a very long shelf-life, so if a company invests in a person, they should be comfortable with that figure’s persona.

This is especially true as television ads featuring now-disgraced celebrities live on forever, thanks to YouTube.  Hertz executives no doubt wish they had a time machine to take out some disgrace insurance on O. J. Simpson.  He was paid a reported $550,000 per year for the endorsement.  British supermodel Kate Moss was photographed snorting what appeared to be cocaine.  Chanel decided not to renew its expiring contract with Moss.  H & M halted its 2005 fall catalogue deal with the model, worth as much as $6.5 million a year.

It is one thing to have to end an endorsement deal prematurely, but its quite another when things get so bad you actually have to pay to get out of the deal,  Such was the case for the Houston Astros in 2002 when Enron, a major sponsor (the home stadium was previously named Enron Field), became embroiled in the worst financial scandal of all time.  In 2000, the Astros entered a 30 year, $100 million agreement with energy giant Enron to name its park after the company.  When Enron collapsed in 2001, the major league club had to pay Enron’s creditors $2.1 million to get out from under the bankrupt firm’s shadow.  The ballpark was temporarily named “Astros Field” before Coca-Cola came on as a sponsor later in 2002.

Disgrace insurance can be purchased either as stand-alone coverage or as part of a broader policy covering other advertising-related risks, such as the risk that the insured spokesperson will die or become disabled during the advertising campaign.  Purchasing disgrace coverage generally costs about 1% of the policy’s limits, so companies typically pay around $10, 000 for every million dollars of insurance purchased.  For a person known to live on the edge, an insurer may require extra premium, or that the insured person sign a warranty relating to his or her lifestyle, consumption of alcohol, or drug use.

The multi-million dollar investments that corporations make to put a celebrity’s face on a billboard, television spot or set of cookware needs protection such as that provided by Disgrace Insurance. Source: Exceptional Risk Advisors

 

 

Term Life Insurance

This type of insurance provides coverage at a fixed rate of payments for a limited period of time, the relevant term.  When the relevant period expires, coverage at the previous premium rate is no longer guaranteed.  The client must either forfeit coverage or apply for further coverage with different premiums and/or conditions.  If the life insured dies during the term, the death benefit will be paid to the beneficiary.

Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specified period of time.  Term insurance is not generally used for estate planning but is used for pure income replacement needs for an individual.  Some policies offer a feature called guaranteed insurability that allows the insured to renew the policy without proof of insurability.

Usage

The primary use of term life insurance is to provide coverage of financial responsibilities for the insured or his or her beneficiaries.  These may include consumer debt, dependent care, university education, funeral costs and mortgages.

a)  Annual Renewable Term :

The simplest form is a term of one year.  The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies one day after the last day of the one year term.  The premium paid is based on the expected probability of the insured dying in that one year.  A challenge to renewal experienced with some of these policies is requiring proof of insurability.  For instance, the insured could acquire a terminal illness within the term, but not actually die until after the term expires.  As a result of the terminal illness, the insured would likely be uninsurable after the expiration of the initial term, therefore unable to renew the policy or purchase a new one.

Some policies offer a feature called guaranteed reinsurability that allows the insured to renew without proof of insurability.

The period for this type of insurance varies from 10 to 30 years.  As the insured ages, the premiums increase with each renewal period, eventually becoming financially inviable as the rates would eventually exceed the cost of a permanent policy.

b)  Level Term Life Insurance:

In this instance the premium is guaranteed to be the same for a given period of years, commonly 10, 15, 20 and 30 years.  The premium paid each year remains the same for the duration of the contract, however, the longer the term, the higher the premium, because the older, more expensive to insure years are averaged into the premium by the insurer.  Renewal options may or may not be included and the insured should review the contract to see if evidence of insurability is required in order to renew a policy.

c)  Options:

Most term policies include an option to convert to a Universal Life or Whole Life Policy.  A person who acquired the term life policy with a preferred rating class and later is diagnosed with a condition that would make it difficult to qualify for a new term policy would be able to use this option.

d)  Return Premium Term Life Insurance:

This provides a return of some of the premiums paid during the policy term if the insured person outlives the duration of the term life.  The repayment would be less the fees and expenses which the insurance company retains.  The premiums for a return premium term life plan are usually much higher than for a regular level term life insurance policy.

Cost Difference

Both term and permanent insurance use the same mortality tables for calculating the cost of insurance.  The premium costs for term insurance are substantially lower than those for permanent insurance.  The reason for lower costs is that term programs may expire without paying out, whereas permanent programs must always pay out eventually.  To address this, some permanent programs have built-in cash accumulation vehicles to force the insured to “self-insure” making the programs many times more expensive.

Conclusion

Insurance industry studies indicate the the probability of filing a death benefit claim under term insurance is as low as 1% of policies paying the benefit.  Term insurance may offer more coverage per premium dollar – by a factor of up to 10.

“Although there are many kinds of insurance (such as whole or universal life) the only type you need is Term Insurance, because it is simple and affordable. Use the “rule of 20” to determine the death benefit.  You want the beneficiary to be able to invest the payout and live off the income, so he or she does not have to worry about tapping into the principal.  That means the death benefit should be 20 times the annual income you need to replace.  If the goal is to replace $50,000 in annual income, you would want to buy a $1 million policy.” – Suze Orman on the SelectQuote Blog.

Disability Insurance

Often called DI or disability income insurance, is a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work.

For example, the worker may suffer from an inability to maintain composure in the case of psychological disorder or an injury, illness or condition that causes physical impairment or incapacity to work.  It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits.  Statistics show that in the US a disabling accident occurs on average once every second.  In fact, nearly 18.5% of Americans are currently living with a Disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.

Types of Disability insurance

Traditional disability carriers have limitations on the monthly benefits, which limit benefits for high income earners.  Benefits typically cap at $20,000 – $25,000 of monthly benefits.

Individual disability insurance

Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies.  Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries.  In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim.  Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances.  Web-based disability insurance calculators assist in determining the disability insurance needed.

High-limit disability insurance

High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level.  Coverage is typically issued supplemental to standard coverage.  With high-limit disability insurance, benefits can be anywhere from an additional $2000 to $100, 000 per month.  Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30, 000 with some companies.

Key-person disability insurance

Key Person Disability Insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability.  The company can use the benefits to hire a temporary employee should the disabled employee’s disability appear to be short-term.  In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.

Business Overhead Expense Disability Insurance

Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability.  Eligible benefits include rent or mortgage payments, utilities, leasing costs, laundry/maintenance, account/billing and collection service fees, business insurance premiums, employees’ salaries, employee benefits, property tax and other regular monthly expenses.

National Social Insurance Programs

In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens.  The U. S. ‘s versions is Social Security (SS) – specifically, several parts of SS include Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).  These programs provide a floor beneath all other disability insurance.  In other words, they are a safety net that catches everyone who was otherwise a) uninsured or b) underinsured.  As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.

In addition to federally funded programs, there are five states which currently offer state funded Disability Insurance programs.  These programs are designed for short term disabilities only.  The coverage amount is determined by the applicant’s level of income over the previous 12 months.  The states are:  California, New York, New Jersey, Rhode Island and Hawaii.

America’s health-care entitlements – Medicare, Medicaid and Obamacare are the biggest drivers of America’s exploding federal debt.  There is a fourth program that pays disability benefits through the Social Security Administration, that is growing at an alarming pace.  While part of that growth can be explained by the ageing of the U. S. population, the largest factor in the proliferation of disability spending comes from the fact that Congress has dramatically expanded the definition of who gets called “disabled”.  As a result, many able-bodied Americans have been granted pay checks for life, crowding out America’s ability to direct needed resources to the genuinely infirm.

The Great Recession of 2008 led to a spike in unemployment;  many people who had difficulty finding work discovered that they might be eligible for Social Security disability benefits, benefits that would replace a significant portion of their previously earned wages, while also qualifying them for Medicare, the generous health insurance program for the elderly.  Today the United States spends around $200 billion a year on Medicare.

Employer-supplied disability insurance

One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees.

There are several subtypes that may or may not be separate parts of the benefits package:  Workers’ Compensation and more general disability insurance policies.

Workers’ Compensation

This is a form of insurance providing wage replacement and medical benefit to employees injured in the course of employment in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence.  The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as “the compensation bargain”.

While plans differ among jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future) reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance).

General damages for pain and suffering, and punitive damages for employer negligence, are generally not available in workers’ compensation plans and negligence is generally not an issue in the case.

Event Cancellation and Non-appearance insurance

Event cancellation and Non-appearance Insurance will cover any expenses or lost revenue that an event promoter might stand to lose if the event they are holding or attending is cancelled, abandoned or postponed for unforeseeable reasons beyond their control.

Types of events that may be covered

  • Sporting events and competitions
  • Trade shows, conferences and lectures
  • Festivals and fairs
  • Film, television and premiers
  • Concert tours
  • Corporate functions and community events
  • Weddings and other special family gatherings

The type of incidents that could endanger an event

  • Inclement weather
  • Natural catastrophes, such as earthquake, flood and fire
  • Structure damage
  • Utilities failure
  • Strike risks
  • Terrorism or threat of terrorism
  • The inability of speakers, performers, teams or exhibitors to appear
  • National Mourning – sometimes excluded
  • Communicable disease – sometimes excluded

In certain circumstances and when dealing with some insurance companies, there may be exclusions:

  1. Actual or threatened use of Biological/Chemical weapons
  2. Losses attributed to or arising from Severe Acute Respiratory Syndrome (SARS) and Avian/Swine Flu or any other flu recognised as a pandemic
  3. Lack of sales, response or reduced attendance
  4. Variations in exchange rates or currency stability
  5. War and civil commotion
  6. Losses resulting from National Mourning
  7. Financial Failure, insolvency or default, support or Withdrawal of support by any party
  8. Acts of Terrorism – a policy can be extended to include this cover.

Examples of possible major impacts:

National Concert Tour

The terrorist act of 9/11 resulted in the cancellation of 1000s of events including national touring groups.  The tour postponed 4 concerts, but was able to make them up one month later.  The extra costs associated with the delay and rerouting the tour was paid for through their event cancellation and non-appearance insurance.

These days with everyone downloading music, recording artists are having to tour more often to recoup losses due to reduced sales of albums and therefore have the high expense and risks associated with touring, particularly to areas known as “hot zones”.

The reality of today’s music industry is that many recording artists have a very short window for top earnings, but when they tour, they are incredibly productive.  As a result, non-appearance coverage has become more popular, especially when a big act goes out on the road.  To make sure they are covered, the artist’s management has to figure out the potential income from tour guarantees plus percentages put up by the promoters, and then factor in what the loss would be if the artist failed to complete all or part of the tour.

According to Pollstar, in 2012 the top 50 tours alone brought in a combined $3 billion.  Factors taken into account when assessing the risk is the artist’s prior non-appearance record, tour schedule and where the artist is in their career financially.  There are many aging rock stars (many over 50) touring these days and the decades of screaming and back-stage indiscretions take their toll and increase the chances of tour cancellation due to health problems.  Vocal hemorrhaging, vocal cord infections and inflammation or the need for vocal surgery can interfere with a rock star’s performance.

Dr. Joseph Sugarman, one of the country’s leading ear, nose and throat specialists has assisted many recording artists over the years and says that the most common throat problems stem from upper respiratory infections, which cause the vocal cords to swell.  The fact is that performing with swollen vocal cords compounds the dangers.

Singers are at high risk as every time they use their vocal cords to sing or speak, one vocal cord vibrates against another.  The louder the voice is used, the more violent the collisions, and the higher the pitch, the more frequent the collisions.  Dr. Lee Akst, a laryngologist of the John Hopkins Voice Centre in Baltimore, explained that recording artists constantly on tour are at high risk to develop vocal cord problems.

Other physical problems can result in event cancellations and non-appearance.  According to Billboard, Lady Gaga, during her 2014 “This Way Ball” concert injured her hip resulting in the subsequent refund of tickets worth about $25 million.

A stadium tour like Lady Gaga’s employ well over 100 crew members, require local support staff and involves top level partners like promoter Live Nation, which pays staggering upfront costs that it hopes to recoup over the course of the tour.  So what happens when the show cannot go on?

Travel delays may cause a major problem for touring recording artists.  During Madonna’s 2008-2009 “Sticky and Sweet” tour, she was traveling from Europe to the United States to South America with her four 747s full of cargo.  One of the planes was n’t cleared for flight from Mexico City to Buenos Aires and the show had to be postponed.

Physicians’ Group Annual Convention

A major source of revenue, sometimes generating more income to the organisation than membership dues, conventions and trade shows are very important to the sponsoring group.  Buying event cancellation insurance based on 100% of their gross profit potential guarantees them continued year-round operations in the event of an interruption or cancellation of their event.

Film Production Company

Filming outdoor scenes in the Northeastern US in late April in chancy.  Spring ice and snow storms can bring the production to a halt.  By ensuring the entire budget with event cancellation and non-appearance insurance, the production company is able to insure against bad weather and cast non-appearance.

Circles Group expects demand for film insurance packages to increase in the next five years, as film budgets in Asia are increasing and co-productions with western producers and foreign investors are increasing.  This will drive demand for more sophisticated and comprehensive insurance products which are tailored to local needs.

Major Golf Tournament

Faced with paying appearance fees to certain high profile players, the tournament organizers want to make certain, in the event of cancellation, they are reimbursed their fees.  Concerned only in insuring their out of pocket expenses, they may elect to buy a policy based on expenses only, not gross receipts, thereby significantly reducing the premium charged for the policy.

Aviation Insurance

The International Union of Marine Insurance first set up an aviation committee and later in 1933 created the International Union of Aviation Insurers (IUAI) made up of eight European aviation insurance companies and pools.  The London insurance market is still the largest single centre for aviation insurance.  The market is made up of the traditional Lloyds of London syndicate and numerous other traditional insurance markets.  The US has a large percentage of the world’s general aviation fleet and has a large established market.

Aviation insurance is divided into several types of insurance coverage available:

Public Liability Insurance

This coverage, often referred to as third party liability covers aircraft owners for damage that their aircraft does to third party property, such as houses, cars, crops, airport facilities and other aircraft struck in a collision.  It does not provide coverage for damage to the insured aircraft itself or coverage for passengers injured on the insured aircraft.  After an accident an insurance company will compensate victims for their losses, but if a settlement can not be reached then the case is usually taken to court to decide liability and the amount of damages.  Public liability insurance is usually purchased in specified total amounts per incident, such as $1,000,000 or $5,000,000.

Passenger Liability Insurance

Passenger Liability protects passengers riding in the accident aircraft who are injured or killed.  In many countries this coverage is mandatory only for commercial or large aircraft.  Coverage is often sold on a “per-seat” basis, with a specified limit for each passenger seat.

Combined Single Limit (CSL)

CSL coverage combines public liability and passenger liability coverage into a single coverage with a single overall limit per accident.  This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.

Aircraft Hull Insurance

This includes aircraft hull, aircraft hull -war, and aircraft loss of use where the insured operates the aircraft and has an insurable interest in the hull.

Location of risk is determined in one of two ways

1.  By reference to the country in which the insured is located.  Many countries do not specify how the location of an insured aircraft should be determined and this approach is the “default” option, used in the absence of more explicit requirements.

2.  By reference to the country in which the aircraft is registered.  This approach is prescribed by the insurance laws of some countries.  It applies to aircraft registered in an EEA (European Economic Area)  member state, in Switzerland and in some countries where Lloyd’s is not licensed, such as India.  This approach should not be followed unless applicable insurance law requires it.

Where an aircraft operates from or where the contract is concluded can also affect the location of risk.  Special rules apply in some Caribbean islands.  For instance, if a contract insures an aircraft “ordinarily based” in Anguilla or the Cayman Islands, the risk is located there, and if the application for the insurance is made in Jamaica, the contract is subject to Jamaican regulatory requirements.  It is therefore possible for a risk to have multiple locations for regulatory and fiscal purposes, i. e. a German registered aircraft ordinarily based in the Cayman Islands.

Aviation products liability insurance

Contracts can cover engine manufacturers, avionic software producers or similar businesses.  An aviation product liability contract is “general liability insurance” not “aviation insurance”.  The location of risk is determined by the country where the insured company or other entity covered by the insurance has its establishment (s).  The country where an aircraft to which equipment is fitted is not relevant to determination of the location of risk.  In many countries different rates of tax apply to general liability and aircraft liability risks.  The rates applicable to general liability then apply to aviation products liability.

Aviation Cargo (goods in transit) insurance

With the exception of the specific circumstances noted below the location of risk for an aviation cargo policy is determined by reference to the country where the insured company or other entity covered by the insurance has its establishment (s).  If goods are in transit to or from Bermuda, the British Virgin Islands or Guernsey, the risk is located in the place to which or from the transit starts or ends.

Ground Risk Hull Insurance Not in Motion

This provides coverage for the insured aircraft against damage when it is on the ground and not in motion.  This would provide protection for the aircraft for such events as fire, theft, vandalism, flood, mudslides, animal damage, wind or hail storms, hangar collapse or for uninsured vehicles or aircraft striking the aircraft.   The amount of coverage may be a book value or an agreed value that was set when the policy was purchased.  The use of the insurance term “hull” to refer to the insured aircraft betrays the origins of aviation insurance in marine insurance.  Most hull insurance includes a deductible to discourage small or nuisance claims.

Ground Risk Hull Insurance in Motion (taxiing)

This coverage is similar to ground risk hull insurance not in motion, but provides coverage while the aircraft is taxiing, but not while taking off or landing.  Normally coverage ceases at the start of the takeoff roll and is in force only once the aircraft has completed its subsequent landing.  Due to disputes between aircraft owners and insurance companies about whether the accident aircraft was in fact taxiing or attempting to take-off, this coverage has been discontinued by many insurance companies.

In-Flight Insurance

In-flight coverage protects an insured aircraft against damage during all phases of flight and ground operation, including while parked or stored.  Naturally it is more expensive than not-in-motion coverage since most aircraft are damaged while in motion. More on wikipedia about aviation insurance.

Image source: centerforaviation.com

How to Buy Disability Insurance

Without disability insurance, disability can be a financial disaster for you and your family. If you become disabled during your working life, you lose your earning power, but you can continue to have the same living expenses along with mounting medical costs. If you decide to purchase disability insurance, ask the following questions to make sure you get the coverage you need. If you ever become disabled, the right disability insurance policy can help you avoid financial ruin while you recover your health.

How does the disability insurance plan define disability?

Some disability insurance policies consider you disabled only if you are unable to perform the duties of any job, which means you may not be eligible for disability benefits if you can still manage a low-skill, low-wage job. Better disability insurance plans pay benefits if you are unable to perform the duties and fulfill the responsibilities of your usual occupation.

When do disability insurance benefits begin?

Most plans have a waiting period after an illness and before payments begin. Your waiting period will depend on your policy. Your first disability payment can range from 60 days to a year depending on your policy’s particular waiting period. If you are able to choose your waiting period and would like a lower disability insurance premium, you will want to choose a longer waiting period.

Disability Coverage Options:

  • Any Occupation: This definition is more restrictive as benefits are only paid if the insured is unable to perform the duties of any gainful occupation for which he is suited by education, training or experience. Several sites have more information on disability insurance decision points.
  • Partial Disability: Under this policy benefit, the insurer pays a benefit when the insured is only able to return to work (as authorized by his doctor) in a partial capacity. The concept is that an insured who is able to perform some, but not all of the duties of his occupation, is entitled to some benefits.
  • Residual Disability This benefit encourages employees to return to work, at least part-time, following an injury or illness. A residual disability is one that results in the inability for an insured to perform some of the duties of her own occupation full-time, leading to a loss of income and therefore a benefit is paid. Be aware, however, that even long-term disability may not last as long as the client might expect. The typical length of a disability claim is two and a half years. It is in the insurer’s best interests to do whatever they can in terms of rehabilitation and job training, to move beneficiaries back to work. And though Cadillac policies (Informally, a Cadillac plan is any unusually expensive health insurance plan, usually arising in discussions of medical – cost control measures in the United States) offers “own occupation” coverage meaning that the client will receive benefits unless they are able to go back to work in your chosen field – many employer – paid plans only cover “own occupation” benefits for the first two years.  After that you will be expected to try to find work in any field.

How big a benefit can you collect?

It is typical now for companies to pay for long term coverage that would pay workers 50 percent or 60 percent of their income, and to allow workers to pay for another 10 or 20 percent of their monthly benefit.  But be aware that many policies also limit total monthly coverage – the median weekly maximum is $1,154 according to Mercer. Clients may need more money than that, especially because Mercer reports that two in five employers will kick you out of their health insurance plan while you are out on disability. The disability income insurance should cover 60% of the individual’s salary.

Highest Movie Insurance Claim

When Paul Walker was killed in November 2013 in the midst of shooting Fast and Furious 7, it was clear that the actor’s untimely death in an horrific car accident would trigger by far the largest insurance claim in Hollywood’s history.

Having had a major role in the majority of previous films in the series, the loss of Paul Walker meant that the film itself had to undergo major revisions – these included rewrites, a halt on production, a larger investment in special effects, and hiring three new actors to play the part of Walker’s character.  When it came to figure out how they would account for the absence of Walker, the film’s producers and director agreed that they would keep Walker’s character in Fast and Furious 7, considering a substantial number of his scenes had already been filmed.  To do so, they opted to have a computer-generated version of his face superimposed onto other actors.

In total, three people took turns in handling Walker’s role, two of which are actually Paul’s brothers and another one being an actor of similar height and physique.  The employment of three individuals to cover the role of one person, as well as the associated cost for creating a believable CG version of Walker’s face all added to production costs.

In addition to this, the amount of time that was spent halting production while figuring out how to handle the film without Walker added around $1 million a week to the production costs.  Between the new actors, the CG, delays and other associated costs, increased the film’s budget by 25% from its original $200 million to $250 million.  Because this additional $50 million has been the result of an unforeseen tragedy, the studio is looking to claim it on insurance.

While the claim is yet to be officially paid, its more likely than not that it will be.  If so, the $50 million claim will prove to be the biggest approved insurance claim in Hollywood history.  While it may prove to be a lot of money in terms of Hollywood payouts, it could have been much bigger.  If the studio had chosen to completely rewrite the film and remove Walker’s character from it entirely, then the additional production costs could have amounted to the same costs of the original budget.

In the past, the passing of Hollywood stars have required sudden changes to film production.  The next instalment in The Hunger Games film series will also see some changes as a result of Philip Seymour Hoffman’s passing. While it was suggested that a computer-generated version of Hoffman’s character would be used to fill in any remaining scenes, the film’s director has stated otherwise.  Instead, he noted that already-available footage of Hoffman will be used where necessary.