Car Insurance Fraud

The festive season requires extra monies for Christmas gifts and elaborate celebrations. Price hikes intensify in January. School fees, household and vehicle insurance increases. Therefore this makes car insurance fraud attractive to certain types of individuals.

Car insurance fraud is illegal in all 50 states in America. Insurance companies do all they can to investigate and expose car insurance fraud. The following are some ways these scams are committed: –

1. “Owner-give-up”, i. e. vehicle dumping where an owner disposes of the vehicle by leaving it somewhere, dumping it into a lake or river, burying it or even selling it. A claim of theft is then submitted to the insurance company, thus an owner committing car insurance fraud.

When the car is sold before a report of theft is made, the fraudster will claim that the vehicle was stolen and thus obtain funds from the insurance company. Extra monies too from the sale of the original vehicle.

2. Sometimes mechanics use shoddy parts to repair a vehicle. They also  present an over-exaggerated parts and/or labour claim to insurers. Some resort to fabricating the extent of the vehicle damage.

3. Another car repair scam involves the replacement of airbags after an accident. The repairers stuff the compartments with objects with items such as beer cans or pack in peanuts to keep the sensors activated. California passed a protective law against such practices and as a result the guilty party could face a year in prison plus a $5000 fine.

4. Fake traffic deaths or collisions staged by fraud rings may result in false or exaggerated claims. The group may consist of claims adjusters and dishonest officers who create bogus police reports to process claim application.

5. A well-known tactic swindlers use is to drive to a bustling junction or roundabout and apply brakes sharply therefore causing a motorist to collide with the back of the fraudster’s vehicle. Accusations of fast driving or tail-gating is labelled as the reason for the collision.
Claimants may use a “recruited” doctor to diagnose whiplash or other soft-tissue injuries. These are difficult to dispute later.

Many people do not realise that loss indicator insurance agents have “red flags” they look for in possible scams:

– A claimant who is totally unflustered after submitting a large claim.
– Hand-written receipts for repairs on a covered item.
– An insured who increases auto insurance coverage shortly before submitting a claim.

Many insurers have Special Investigation Units. Employees who work in SIUs generally have backgrounds as detectives, police officers and medical personnel. Insurers are now using social media on suspicious claims. Perhaps the claimant who said his car suffered hail damage will be bragging about his deception on Facebook or Twitter.

Car insurance fraud is not just a problem for insurance companies. It is your problem too. According to FBI statistics, non-health insurance fraud costs $40 billion annually, which you cover by paying annual premiums $400 to $700 higher than they would be if there were no fraud at all.

In 1993 The Coalition Against Insurance Fraud was founded. This organisation collects information on insurance fraud. Through its unique work it empowers consumers to fight back. It helps fraud fighters to detect this crime. The Coalition deters more people from committing fraud. It has information, research and data services and insight to help the anti-fraud community.

Genes and insurance

A genes test could inform you about the increased risk of certain diseases. More people may want to take this test. However, the insurance industry is displeased about these tests.

People can order these tests online. A company in California 23andMe has already collected more than 4000 litres of sputum since 2007. 23andMe is a privately held genomics and biotechnology company in Mountain View, California. The company is named for the 23 pairs of chromosomes in a normal human cell. In 2007, 23andMe became the first company to begin offering autosomal DNA testing for ancestry. Two million people were given information about their ancestry and health risks.

23andMe received regulatory approval to screen for risk factors related to ten diseases and conditions. These diseases include Alzheimers and Parkinson’s.

Insurers want to have access to this information about genes. This information will harm the companies.

On the other hand, consumer groups feel that insurers will use genes information to exclude people from coverage. These advances will, however, impact insurance companies. These tests could influence medical as well as financial decisions. A person who has been shown to potentially have the risk of getting a critical illness could take out critical illness coverage, which pays a lump sum on diagnosis.

A person who has the risk of dying at a young age may take out a well-paying life assurance policy, payable upon his death to his spouse or relatives. Predictive tests need not be disclosed, unlike diagnostic tests.

Asymmetry information is when a customer knows more than the insurer. This is an insurer’s nightmare. On the other hand, for health and life insurers, who want to keep people alive and well, this information could be invaluable.

Discovery, a South African health insurer, plans to offer customers a test that maps part of their genome. The focus is on “actionable data” where medical intervention or lifestyle change that could mitigate risk.

High tech features

High-tech features on cars drive up insurance rates. The blind-spot monitoring, as well as backup cameras, are some of these features. We feel safer but with that comes a heavy price.

With lower gasoline prices, more miles are driven now. With more miles, comes increased risk of accidents.

The Information Insurance Institute admits that these high tech devices are expensive to repair. An example is the repair of a bumper. A 2014 model car bumper repair costs $1,845. In contrast, the cost for a 2016 model is $3,550.

Parts on 2016 vehicles are 130% higher. Labour costs are 18% higher.

Consumers are advised to check out insurance rates before purchasing a new vehicle. Other changes in life should also be considered. For example, marriage and a job change.

Michigan has a ‘no-fault’ insurance system. It is notorious for its high insurance rates. Other factors that result in higher car insurance rates are distracted driving, faster driving and legalized marijuana. Texting and cell phone usage are additional problems.

Some drivers have developed a false sense of security due to high tech assistance and are therefore less attentive when driving. A high tech feature such as antilock brakes did not reduce accidents but resulted in more aggressive driving. Drivers rely heavily on this feature. The same applies to collision warning systems.

High tech safety/driver assist systems on many new cars today as mentioned before, cost a lot to fix. Sensors and cameras are located in vulnerable places such as grilles and bumpers.

There is another factor that has yet to be built into new car insurance. This is the cost of hacking into new car systems. This will further increase the cost of vehicle insurance.

Cyber exposure

The fastest growing peril faced by businesses today is cyber exposure. Firms are driven by data and are dependent upon technology.

Occurrences in 2017 highlighted cybersecurity issues. Furthermore, we were shown how vulnerable we are to the hacking of our personal information. Hospitals, voting records and school districts were targeted. Not only were US consumers the focus of the hackers but also another 150 countries.

Three hundred thousand computer systems across the globe were affected by the malevolent Wannacry, NotPetya and Equifax malware. They caused extensive business interruption losses.

Brad Gow, global cyber product leader at Sompo International has warned that a threat could come from a dozen different directions. Cyber experts view the industry as unprepared for cyber exposure due to a lack of experience and data. This is troubling in a continually evolving cyber risk environment.

The NotPetya malware was composed to attack corporate networks. It used a hacked version of a well-known accounting program in Ukraine. It destroyed data and filesystems within each computer.

Most of the attacks happened in Ukraine and Russia. Losses amounted to hundreds of millions of dollars within a few weeks. However, business interruptions continued for months.

Brad Gow said that fortunately, it had not been a true zero-day event. If it had been, this would have turned the cyber insurance market on its head. A zero-day attack happens when developers have not had time to fix a recently discovered software vulnerability. Therefore, there is time for hackers to take advantage of the security gap.

Equifax Inc. expects the 2017 data breach costs to top $275 million this year. Reuters has stated that this could be the costliest hack in corporate history.

In May 2017 WannaCry targeted computers running Microsoft Windows operating system. Data was encrypted and then Bitcoin ransom payments were demanded.

It appears that companies are taking cyber insurance more seriously since the above attacks.

Maersk, a transport and logistics company, lost more than $200 million due to the NotPetya attack. As a result, the company has said that they are taking cyber insurance coverage very seriously.

Active shooter insurance

The McGowan Companies began selling active shooter insurance in 2016.  17 people were killed and a dozen injured on the 14th February 2018 at a Florida high school.

Subsequently, seven South Florida school district has bought $3 million active shooter coverage. Calls are received daily by the broker Paul Marshall of McGowan.

This insurance pays up to $250 000 per shooting victim. Building damage is also covered. It includes office buildings and concert halls. Furthermore, the insurance takes into consideration not only death but serious injuries such as total disability and loss of sight.

Many organisations are vulnerable to active shooters. These include educational, religious institutions, retailers and healthcare facilities. These places are difficult to secure. In addition, a high volume of people is often present every day.
Therefore an armed individual is able to enter unchallenged.

Additional costs include victim lawsuits, legal fees, medical expenses and trauma counselling. Companies hire Media consultants.

Accountants handle charitable contributions.  Buildings as well are reconstructed where bloodshed occurred.

Some desperate families were forced to crowdfunding sites. For instance, Roger Borges is using GoFundMe to raise $1 million for his son Anthony, a Parkland student who has undergone eight surgeries since being shot five times during the massacre.

Anthony has insurance through a government-sponsored program for children, but it is, however, unclear how much it will cover.

Premiums are $1,400 per anum for $1 million coverage for a small private school. A large public school district could be quoted $50,000 to $100,000 per year for a $5 million to $10 million policy.

The building at the Parkland high school where the shooting happened, will be replaced at a cost of $25.3 million. This safety law was signed on 9th March 2018.

According to Church Mutual Insurance Co., customers have called wanting to raise coverage up to $300,000 per victim per violent incident.

The vice president of Special Markets Insurance Consultants also said his firm was considering a name change for its Active Shooter Insurance policy. However, he concluded that these occurrences cannot be sugarcoated as they are what they are.

AI

The insurance industry has data at its centre.  Data is gathered in large amounts on a daily basis. In addition, this process happens at a tremendous speed.  AI and machine learning are transforming the industry. Human-like machines are thus being built.

According to surveys, humans do not, however, mind interacting with a bot.  Consumers are satisfied to get computer-generated insurance advice.

Tata Consultancy Services has invested $124 million in AI. Other industries invested on average $70 million.

Many claims, customer queries and huge amounts of data resulting in the insurance industry being a natural use case for AI.

* Claims are handled rapidly;
* AI identifies patterns in data and can, therefore, find fraudulent claims;
* The collection of this data helps with risk evaluation;
* Powered chatbots replace human assistants. This results in fast and efficient customer service;
* Chatbots are able to obtain customers’ geographic and social data. This increases personalised interactions;
* Wearable sensors will lower premiums for less risky behaviour. This includes driving and exercising.

Claims can be forwarded through a mobile app, photos taken of the accident and the claim submitted instantly. Trained algorithms via pictures from past claims can estimate the cost of damage.

Siri, Alexa and Google have become part of our daily lives. Through voice recognition, tones and emotions can thus give clues regarding customer service and fraud detection.

In addition, by means of past pattern analysis and actions, AI can recommend suitable action to management on how to retain a customer. Furthermore, additional recommendations can be made in which additional insurance products to sell to the client.

A Gartner report furthermore predicts that by 2020, 85% of interactions with customers will occur without human involvement. In addition, the savings by using bots instead of humans would be passed onto the consumers by means of cheaper premiums.

Drone Insurance

 Insurers now offer drone insurance to businesses who fly drones.

A startup called Verifly is available to drone users with a new mobile app.

The co-founder and CEO Jay Bregman said that he and co-founder and CTO Eugene Hertz  designed a user-friendly app. This app will meet the drone insurance needs of drone operators.

The Verifly app draws a quarter mile circle around users. It analyses information from Verifly’s geospatial and weather databases. The user is shown the estimated risk. A price is set for the drone user on a policy. This can be purchased on-the-spot. If a price is agreed upon, users pay with a credit card.  They get $1 million in 3rd party liability coverage with $10, 000 invasion of privacy coverage.

Unmanned Risk Management, the largest underwriter of aviation insurance in the world has insured  drones in all 50 U. S. States.   They also give insurance for drones for the seven film operators that received a Section 333 exemption from the FAA to use drones on Hollywood movie sets.

The FAA said that existing aviation regulations, give it the authority to ban commercial drone flights that have not received waivers to operate. The agency has issued fines against an unspecified number of drone operators.

In other cases the FAA has worked with law enforcement agencies to contact people who have operated drones that were unsafe or unauthorised.

Harry Arnold, owner of Detroit Drones, said he is hoping the FAA rules go into place as soon as possible. That has not stopped him from running a drone photography business for the last five years.  His website includes aerial video of real estate developments, construction sites and a car race.

Arnold, who said he does not have an FAA waiver, disputes the agency’s authority over commercial drone flights with regulations still incomplete. While some drone entrepreneurs may see their wings clipped once the FAA’s new restrictions become finalised, tighter standards are good news for the sometimes chaotic, unregulated industry Miller said.

Before writing drone insurance, Miller requires a drone flier to develop standard operating procedures.  He also requires clients to keep logs of flights and maintenance. Furthermore to have at least a basic understanding of FAA rules for traditional pilots.

Some of his standards in fact exceed those in the FAA proposals. His standards say pilots would have to pass an aviation knowledge test.  They could only fly below 500 feet and also within sight of the operator. There would be no requirements for logs or maintenance standards.

Perhaps most of all, insurers assess the likelihood of an accident involving people, as that is where the possibility of expensive litigation and indemnity payments exists.

Insurers routinely mandate higher safety standards than those set by the FAA for traditional aviation risks.

Electric Vehicles

There are many working parts in an internal combustion engine.  The owners of electric vehicles, however,  do not have to worry about these parts.

Most insurance companies regard electric vehicle drivers as more responsible.  They are therefore less likely to be involved in a car accident. A Chevy Volt costs an average of $1,452 per year to insure. Its non-electric counterpart, namely the Cadillac CTS is approximately $2,024 per annum. The most popular electric vehicle in 2016 was the Toyota Prius C and its annual insurance premium average $1,513 in comparison to $1,801 for a Nissan Altima.

Every electric vehicle is not, however, cheaper to insure.

Many well-known insurers have a problem reacting to new technology, such as electric vehicles, however, there are others who are highly flexible.

Zurich put into motion a worldwide drive which thus put emphasis on the advancement of products and services which would help consumers deal with climate-related risks. The conversion to electric vehicles is part of the solution. The ultimate goal is low carbon emissions. Zurich’s electric car insurance cover includes:

  • 20% discount on an electric car’s insurance premium;
  • 24-hour roadside assistance;
  • In the event of your car running out of charge, you will get free towing to the nearest public charge point or to your home charge point, whichever is the nearest;
  • Your car will be repaired if you have a mechanical failure. You will be towed to the nearest specialist electric car repairer at no charge.

Also. enquire about cable liability.

Does your insurance policy cover the possibility of somebody claiming liability should they trip over the cable and hurt themselves? The cables are short.

Nissan is part of the Renault-Nissan Alliance. Nissan delivers a range of more than 60 models under Nissan, Infiniti and Datsun brands. In 2010, Nissan introduced the Nissan LEAF and continues to lead in zero-emission mobility.

The Renault-Nissan alliance have sold 200,000 electric vehicles worldwide to date. They say that they control 58 percent of the segment. The CEO of the alliance, Carlos Ghosn claims that there are, in his opinion, four reasons why car buyers are making the switch to electric vehicles.

  Owners can make a “recharge” without making a trip. These recharge points include the drivers’ homes and workplaces.

Mr. Ghosn is to have said that the “cul-de-sac” effect is, therefore, helping the market share grow.
Ghosn claims furthermore that the Nissan and Renault EVs have the highest customer satisfaction rates of any vehicle that either company has ever produced to date.

Bitcoin

Bitcoin is an online payment invented in 2008.  It was released as an open-source software in 2009. The system is peer-to-peer. Users can transact directly without needing an agent.  People find this currency attractive as no bank can control it.

Bitcoin. The ledger uses its own unit of account also called bitcoin. The system works without a central repository or single administrator. This has led the US Treasury to categorise it as a decentralised virtual currency. This is the first cryptocurrency.

Bitcoins are created as a reward for payment processing work.  Users offer their computing power to verify and record payments into the public ledger. This activity is called mining. There can only ever be 21 million bitcoins. The smallest denomination is called a Satoshi.  Besides mining,  they can be obtained in exchange for different currencies, products and services.

With an estimated $14 billion worth of Bitcoins in circulation 82,000 merchants now accept this currency.  Eight million users have set up wallets.   These are accounts where they store and manage the currency. The number is growing.

Bitcoins are a way of using and moving money without a bank account or credit card. The currency fluctuates in value against other currencies. Recently, a Bitcoin was worth about $10,571 in U. S. dollars.

Users can purchase this currency, store them in a virtual wallet linked to their smartphone.  They can then scan their account information at participating establishments to pay for merchandise.

Insurers that consider the possibilities of protecting Bitcoin users have other lingering concerns. For one thing, Bitcoin has some volatility. Therefore you can’t have the same approach to storing it as you would a commodity. Volatility in price is one of the things carriers are concerned about. An upward move in price can be beneficial to an owner. It is difficult to understand.  The price movements is a very complex problem for insurers.

Individuals or businesses are protected when holding bitcoins  This is in much the same way a safe deposit box at a bank secures valuable. Once stored in a virtual wallet, the currency can only be moved or accessed through the use of two “keys” – or codes. One held by the Bitcoin owner and the other held publicly. A person could lose the thumb drive that has the private key on it, then they are no longer able to unlock the Bitcoin wallet.

Investment in Bitcoins has been relatively robust. The growth in investment so far in the short life of the currency has been stronger than the growth of Internet-related investments during a similar period in its startup.

Venture capital companies have invested more than $670 million worth of Bitcoins into security-related enterprises. Insurers have viewed Bitcoin use as a cybersecurity risk. There is a distinction between ensuring Bitcoin value and covering the management of a Bitcoin company. The price of the currency cannot be insured but the company could be covered like any other Directors and Officers insurance.

Bitcoin theft insurance is available, however, it is pricey and there are only a few policies. However, over time more people will get involved.   Thus there will be more consistency in the security of the underwriting.

An interesting aspect of Bitcoin is the anonymity of users.  While every Bitcoin transaction is digitally recorded, parties to the transactions are identified only by account numbers, not names. The anonymity seems to be part of Bitcoin appeal for many users.

Any transaction that is done via email leaves an electronic “track” that can be followed back to the user, so the anonymity is hardly complete.

The vast majority of people in the world do not have bank accounts or credit cards, but many of them do have smartphones.

Bitcoins could become a simple and reliable currency for millions of people. Bitcoin is the cutting edge of where monetary systems may be going, although this would not happen overnight.

If Bitcoin is going to survive as a digital currency, it is going to have to convince investors that their holdings are safe. There has been a huge problem lately as two exchanges recently shut down due to hacker attacks.  This attracted unwanted headlines and added fuel to detractors who believe cryptocurrencies are untrustworthy stores of wealth.

Falcon Global Capital, a San Diego firm launched a fund that will offer investors access to insurance should their bitcoins suddenly disappear, as they have for other unfortunate believers operating in the MX GOX or Flexcoin exchanges.

Green building

By means of green building, consumers can benefit financially as insurers offer discounts on insurance coverage for green building.  The process of building this way is therefore environmentally responsible.   Eco-friendly construction is putting up structures that are beneficial for the environment. They are resource-efficient.  The construction thereof is energy-efficient.

Buildings often have a negative impact on our environment and our natural resources.  Responsible insurance carriers are happy to reward clients with discounted insurance coverage.  Negative aspects of energy waste include transporting materials hundreds or thousands of miles to building sites. Poorly designed buildings emit hazardous chemicals.  These chemicals are trapped inside the buildings affecting the health of the occupants.

Good building practice includes rammed earth construction.  This  also involves clay-based materials mixed with water.  This is rammed into a solid wall form.  Straw is a great insulator and bales of straw are used as the central structure of the house.  When compressed, straw is fire-resistant.

Other positive features are:

The use of solar panels for water heating; the collection of rainwater for garden use and the re-use of grey water; low energy light bulbs; cellulose insulation; lead-free paint; locally grown and harvested timber from sustainably managed forests.

Green building projects are increasing in popularity.   Between 2008 and 2010, green building projects increased by 50%.  They are projected to top $135 billion by 2015.  Owners of green buildings see higher property values.   Little changes are insulating water pipes. Bigger changes are installing solar panels and alternative water systems.

The return on investing in green building techniques now goes beyond good feelings and lower utility bills.  Green buildings may have more upfront costs than conventional but also have a lower overall risk.   Eco-friendly construction reduces risk and energy efficiency raises a building’s economic value.  Instead of costing building owners more to ensure new and complicated green additions, insurance rates actually decrease for green buildings and improvements.  Green buildings are safer and more resilient than conventional buildings, resulting in lower overall risk to insure.

Instead of costing building owners more to ensure new and complicated green additions, insurance rates actually decrease for green buildings and improvements.  Discounts on green insurance products are justified by safety data linking reduced emissions with accident and damage mitigating behaviour.  Green buildings are safer and more resilient than conventional buildings, resulting in lower overall risk to insure.

Two types of insurance are offered for green building.  The first, offered to conventional building owners, is a green-rebuild policy.   Another policy type, offered to owners of already-green buildings, insures existing green modifications against loss.

After years of inertia, the $16 trillion industry has begun to address climate change with mandatory risk disclosures and more products to help businesses and individuals reduce energy use.  In March, insurance regulators adopted mandatory climate-risk disclosure standards for insurance companies with annual premiums of $500 million or more.  These standards require the firms to report to regulators and investors the types of payout risks they may face due to climate change.

Insurance for green building are rapidly gaining traction in the marketplace.  Fireman’s Fund Insurance Co. offered the first commerrcial green policy.   Now several large companies offer insurance coverage for green building.  By 2009 over 22 companies offered 39 insurance products related to green building.

In the case of a loss, Fireman’s Fund Green Certification covers a rebuild to one level higher than pre-loss certification level and offers broad coverage of alternative green technology including vegetated roofs and underground water recycling systems.

Policyholders with Energy Star buildings are also eligible for a 5% discount.  Fireman’s Fund also covers lost tax incentives and utility discounts and, when losses exceed $10, 000, pays for a commissioning agent to oversee repairs and verify replacements.

Travellers Insurance Company provides an add-on Green Home Upgrade to its current policies and gives a 5% discount for homes already LEED certified.  Small businesses also qualify for additional green enhancements up to 5% of the total los

Although there are benefits to “going green” in the construction, development and operation of buildings, there are also risks unique to green building that will test the boundaries of coverage under typical liability insurance policies.

  Part of the appeal of green building is its self-sustaining nature, and there are few better examples of those types of measures than vegetative roofing and alternative power and water systems.

 

 

 

Other driver

You may be driving below the speed limit. You are obeying the traffic signals. Another driver ploughs into your car. In each instance, it does not necessarily mean that the other driver’s insurance company should pay your medical and car repair bills.

The small details of the accident matter. Rules vary from one state to another.   There must be proof of negligence for the other driver to be liable.

Attorney Benjamin Zimmerman is a partner with Sugarman & Sugarman, a firm of attorneys in Boston. He claims that if negligence cannot be proved, then you cannot win the case and if you cannot win the case, insurance companies know that and therefore will not pay.

An important aspect of a successful claim is to prove the other driver is at fault.

In states with no-fault auto insurance systems, your own insurance generally pays for your medical bills. This is regardless of who was at fault.

In New Jersey it is illegal to operate a motor vehicle without liability insurance coverage. In some jurisdictions. liability coverage is available either as a combined single limit policy, or as a split limit policy. Virginia does not require that the other driver carry car insurance.

There are instances when the other driver’s insurance company may refuse to pay out, even if you think it should pay out.

A sudden incapacitating medical event is a defence.  It is more common than people might think. The other driver may have a heart attack or stroke.  The person may not be liable if he loses control of the vehicle. If this person was aware of his medical condition, he should not have been driving a car.  He is therefore liable.

Another example is that of a pregnant woman who hit a car. The attorney managed to establish that the pregnant woman had enough time to pull to the side of the road safely. This could have happened before she was feeling flushed and fainted. Her insurance company then had to pay his client’s claim.

A collision from a fire truck racing to an emergency: The standard for proving that an emergency vehicle driver was liable is much higher than the standard for other drivers. Local and state jurisdictions have varying rules and timelines for filing claims against them.

 Most emergency vehicles enjoy immunity from liability for negligence.

If the other driver hits you because of an accident with a hit and run driver, you may be able to claim under your own uninsured motorist coverage. A driver is a criminal in all states in the USA if he fails to stop. The police must stop to provide immediate assistance.

However, when a thief takes a car, there is no permission or consent. Therefore, the car owner’s insurance will not pay. If the thief was caught and he had a policy. Hence his insurer would also not pay because insurance does not apply to criminal acts. You could sue the thief, but the chances of recovering any money damages are minimal. The car owner may be found partially liable if he did something negligent, which led to the theft.

There are instances when an accident occurs which is nobody’s fault. A deer may jump out in front of a vehicle causing it to hit someone else. A driver could be partially liable if he was exceeding the speed limit.

Certain states have comparative negligence laws when liability is calculated on a percentage basis. One party may be 30 per cent liable and the other party 70 per cent liable.

Comparative negligence laws dictate how the responsibility for an accident will be shared between the parties directly involved in an accident, where bodily injury or property damage was suffered.

The insurance company will make the injured party an offer based on what it believes to be the amount of negligence of its insured. The insurance company may interview the involved parties, including witnesses, and may also review the accident report in order to determine the amount of the offer.

An insurance company may believe that its insured was not more than 50% or more at fault.  They may not offer to pay any damages for the loss. The other driver may negotiate with the insurance company until a settlement is reached or until the two parties reach an impasse.

If a settlement cannot be reached, the courts make the final determination of comparative negligence.

Wildfires

Fires in California’s wine country started on 8th October 2017. At least eight of the state’s counties experienced the worst wildfires in California’s history.

Forty-three people died.  This included that of a firefighter. This death toll is also the largest loss of life from a single wildfire in California.

The Department of Insurance has stated that losses are expected to be more than $3.3 billion.  14700 families lost their homes.   Furthermore, fires destroyed businesses and vehicles.  Fifteen major insurance companies will cover these financial losses.

Insurance companies will not want to ensure areas previously considered low-risk for fire damage.  The insurance companies update risk models.

Especially noteworthy is that The California Department of Insurance has stated that insurance companies are not allowed by law to increase rates as they wish. Higher rates must be requested from the Department.  The Department presents Data history.   Raising rates or cancelling fire policies of citizens who have damaged or destroyed properties is furthermore against the law.

According to Nicole Ganley from the Property Casualty Insurers Association, insurance companies plan for fires in California. The firms prepare for such occurrences. An amount of $700 billion is available in case of wildfires as well as the backing of re-insurers.

According to Ms Ganley, even with sufficient history, it would take many years for wildfire insurance increases to trickle down to consumers.

History affects insurance hikes.  Does the home have a sprinkler system? Has the homeowner cleared vegetation away from the residence?

Insurance firms in California use a system called Fireline from Verisk Analytics to determine the risk to insured properties. The three factors are: –

* Fuel – nearby grass that can fuel a wildfire;
* Slope – steeper slopes  that can boost the speed of wildfires;
* Access – are firefighters able to reach the property with ease?

Drones

U. S. companies are urging federal aviation regulators to speed up the use of drones in disaster response and relief operations in the United States.

The consulting firm’s 32 Advisors propose the use of drones for various purposes.  These range from response planning and damage assessment to supply delivery.

The view from above is key for humanitarian response, which explains why satellite imaging has played a pivotal role in relief operations for almost two decades now. Satellites do however present a number of limitations. These include cost, data sharing restrictions, cloud cover, and the time needed to acquire images.

In contrast, drones can capture aerial imaging at a far higher resolution. They move quickly and at a much lower cost. Unlike satellites, members of the public can actually own drones. This therefore means that disaster-affected communications can launch their own drones in response to a crisis.

Groups like SkyEye in the Philippines and CartONG in Haiti are actively training local communities to operate their own drones for disaster-preparedness purposes.

Public comment is scheduled for April 24, 2015. The 52 page report is sponsored by companies that are involved in drone technology.  They thus hope to use the devices to cope with hurricanes, earthquakes, wildfires and other disasters. The sponsors include Boeing Co, Lockheed Martin Corp, United Parcel Service inc, IBM Corp, Willis Group Holdings Ltd and Zurich North America.

 The United States officially banned drones for civil and commercial use. This is unless the operation wins FAA approval under a process that many have found to be too slow. The proposed rules finalised late 2016 or early 2017.

More than 1700 migrants are believed to have died attempting to cross the Mediterranean from North Africa to southern Europe this year.  800 deaths occurred in one incident mid-April. The International Organisation for Migration has warned that the death toll could exceed 30,000 by the end of the year. The team conducted test flights at a simulated disaster city at Texas A&M University. Using infrared cameras, the aircraft could spot people trapped in the rubble.  They relayed these images back to humanitarian response teams for more effective delivery of aid.

Drones identify structural damage to buildings.  Insurance companies help victims with insurance claims.  However, the researchers found that for drones to be effective in such missions, they need to get into the air within 24 hours of a disaster.

Small marine machines cleared underwater debris after the Haiti earthquake in order to allow aid shipments to arrive.

Off-shore oil rigs use drones.  Machines can assist with raising the alarm when workers fall overboard.

Insurance Riders

You’ve worked out how much life insurance you need.   A collection of life insurance policy add-ons, called Insurance riders, must be considered. Insurance Riders can give policyholders additional benefits.

Insurance Riders increase peace of mind because if something goes wrong, there is a Plan B.  When you buy life insurance, available Insurance riders vary by insurance company.   Costs also vary and depend on many factors, including your age, health and type of policy.

1.  Waiver of Premium Insurance Rider:

A waiver of premium rider usually associated with life assurance may be inserted into a policy at an extra cost.  The policyholder must have been disabled for a specific period, for example, six months.  Other requirements may be necessary such as the state of health of the policyholder and must be below a certain age.

2.  Disability Income Insurance Rider:

This is one of the most common insurance riders and one that may be particularly important to younger policyholders (typically, those under 40).

 Some insurers make this rider available through age 50.

You collect a regular income from the insurance company if you become totally disabled and can’t work.  The policy specifies the amount of the income.  Furthermore, whether it’s paid for a certain amount of time.  Some disability income riders pay out only if you become disabled from an accident. Others pay on accident and sickness.

3.  Guaranteed Insurability Insurance Rider:

This rider provides specific dates on which additional life insurance policies can be bought.  Usually, the older the insured gets, the fewer dates the policy owner has to purchase more life insurance. (http://www.lifeinsurancewiz.com/LifeInsurance/LearningCenter/guaranteed.htm) This rider lets you purchase additional life insurance at a later date without undergoing a medical exam or providing any evidence

4.  Term Conversion Insurance Rider:

Provides coverage for a certain period of time, such as 10, 15 or 20 years.  Permanent life insurance, such as whole life or universal life, provides coverage for your entire life, so your beneficiary receives a benefit no matter when you die.

This insurance rider lets you convert term life insurance into permanent life insurance without undergoing a medical exam.  It is especially attractive to young people starting careers and families who need life insurance but don’t have enough money yet to secure all the coverage with permanent life insurance, which has higher premiums than term life. There will be a deadline for when you must

There will be a deadline for when you must convert if you want to change the term policy to permanent life insurance without providing health information.  Understand the convertibility features before you buy.

5.  Accelerated Death Benefit Insurance Rider:

Accelerated Death Benefit Rider has become standard in the insurance industry. It is usually included automatically for free or offered at nominal cost.  This insurance rider lets you collect a portion of the policy’s death benefit if you become terminally ill with a short life expectancy, such as one year.  The policy spells out how much of the death benefit is available before death.  Usually, its capped at $250 000 to $500 000.  You can use the proceeds for anything, such as paying medical bills or living expenses.  Even though the insurer offers the rider free, the company may charge a fee if it is exercised.

6.  Critical Illness Insurance Rider:

A rider added to a life insurance policy to protect the insured against financial loss in the event of a terminal illness.

The insurer pays a lump sum if you’re diagnosed with any of the critical illnesses specified in the insurance policy, such as cancer, heart attack, coronary artery bypass, major organ transplant, stroke, kidney failure. (http://www.moneycontrol.com/glossary/insurance/critical-illness-rider_333.html).   Instead of reimbursing you for medical expenses, the way health insurance does, the rider provides money to use for any purpose during the course of the treatment.

Instead of reimbursing you for medical expenses, the way health insurance does, the rider provides money to use for any purpose during the course of the treatment.

7.  Child Protection Insurance Rider:

All emotion must be set aside when considering a child protection rider.  Although the death of a child typically would not result in income loss, as would the death of a spouse, the tragedy still would have financial consequences which could be an additional hardship for a bereaved family.  This term life insurance rider provides coverage for final expenses in case the unthinkable happens.  The coverage generally can be purchased in units.  Basic information about the child’s health is required for underwriting.

 This term life insurance rider provides coverage for final expenses in case the unthinkable happens.  The coverage generally can be purchased in units –  for example $1000.  Underwriting requires basic information about the child’s health.

8.  Accidental Death Benefit Insurance Rider:

If you die from an accident, this rider provides an additional benefit on top of the policy’s regular death benefit. The option is often referred to as double indemnity when the additional payout equals the original death benefit.  Sometimes the rider also includes additional payment for dismemberment.  You would collect money if you lost a limb or your sight.  Life insurers will consider your occupation and hobbies when determining premiums.

9.  Return of Premium Insurance Rider:

If you live to the end of the term, in exchange for paying the premium, in most circumstances you get all your money back. Some companies use a separate rider where others, like ING, write the return of premiums benefit into a basic policy.  You pay a higher premium for the opportunity to get your money back.  The big question to consider.  How does paying the extra cost for the return of premium rider compare to investing that money and buying a basic term policy instead? To find the answer, subtract the annual premium for a basic term policy from the annual cost of a return of premium policy.  The difference is how much you would have to invest each year during the insurance term.  Then calculate what annual rate of return you’d need on that money to beat the amount you’d get back from a return-of-premium policy.

Conclusion:

There is no one-size- fits- all answer to whether any of these Insurance riders are right for you.  You’ll need to weigh policy options to find the best package for your needs. (http://www.foxbusiness.com/personal-finance/2011/05/25/useful-life-insurance-riders/)

In some cases (depending on age, sex, tax bracket and other factors), you’d need to get more than a 7% rate of return on your investment to beat the return of premium policy

Rideshare drivers have insurance options

 Uber Rideshare drivers are covered by Uber insurance. While the app is turned off, you are covered by your personal insurance.  While the app is on, however, and you are waiting for a client, you are covered by neither.

In some cases, personal auto insurance policies are being cancelled. This happens when the insurance companies become aware that the driver works for Uber or Lyft. Therefore they are left with no personal auto coverage.

Consider this:

A person pulls up an app on their phone, types in the position where they are and need to be taken and orders your car. You drive to fetch them.

While you are driving you look at your phone to ensure that you are driving in the right direction. You hit a car whilst your attention is on your phone. It is not a big accident however bad enough that the other driver calls the police. You have to cancel your pick-up.

The police arrive.  You were driving for Uber. The police record your details. You submit your claim.

Your insurance company calls you. You drive in “rideshare”. As a result, your claim is denied. You are responsible for your own car repairs.  Furthermore, you must pay for the damage caused to the other driver’s car. Fortunately, nobody was injured.

The car insurance company then cancels your policy.

You contact Uber to find out if their insurance policy is going to cover the damage. Unfortunately not, says the receiver of your call. They state that as you did not have a passenger in the car, they are not liable for damages.

Lyft, Uber and Sidecar would prefer that you think of them as technology companies. Uber wrote in a legal finding with the CPUC (California Public Utilities Commission):-

Uber operates no vehicles and does not hold itself out or advertise itself as a transportation service provider. In fact and law, Uber does not provide transportation services of any kind and does not own, lease or charter any vehicles for the transportation of passengers. On the contrary, Uber is a technology company that licenses the Uber App to transportation service providers. The transportation service providers pay a fee to Uber to use its software technology; the passenger of the transportation service provider pays the transportation service provider for transportation received.”

Irma

Residents will pay a large proportion of the catastrophe caused by Hurricane Irma. The Consumer Federation of America made this statement.

Insurers have therefore developed higher wind coverage deductibles.  Paperwork obscures payouts.  However, many consumers do not read or do not understand the documentation.

There will be about 300,000 claims for wind damage and 150,000 flood damage claims in the future.  These claims could reach more than $40 billion.

There are “anti-concurrent causation” clauses in policies.  Wind damage is excluded. This is the case if an “uninsured flood” occurs simultaneously.  Wind coverage disappears through a hidden backdoor in a policy.
The National Flood Insurance Program has $1.5 billion to assist in paying claims, as well as $5.8 billion in borrowing authority. $250,000 is offered for structural damage and $100,000 for damaged or lost contents. The residents need to survey damages as soon as possible. The policy of the NFIP is first to come, first served.

Insurance companies will use drones to assess damage as the use of insurance adjusters is very costly. Furthermore, this will speed up the payment to the Irma hurricane victims.

Two percent is the usual deductible of the insured value of a residence. Therefore on a $300,000 home, the deductible would be $6,000.  This amount is payable before an insurance company will pay out any amount to the insured.

Victims of Irma need to know that the comprehensive section of their auto insurance also covers flooding.

President Trump issued the following for Florida i. e. to provide temporary housing and give financial housing for home repairs.  grants to be made available to assist with medical, dental and funeral transportation.  Furthermore, relief to be provided regarding unemployment for up to 26 weeks for state benefits.
Loans at low-interest rates to cover losses not covered by insurance.
Crisis counselling is available.

Business Owner’s Policy

Business Owner’s Policy

A Business Owner’s Policy (BOP) is a special type of commercial insurance. It is designed for small and medium-sized businesses.  It combines general liability insurance and property insurance into a single policy.  A Business Owner’s policy typically offers a reduced premium, often making it a more cost-effective option than separately purchased policies. Specific coverage included in a business owner’s policy varies among insurance providers.   Most policies require that businesses meet eligibility criteria to qualify.

Just as you would protect your home and its contents, you should also cover your business assets against a loss.  Ensure that the coverage is adequate.  The most common is to insure for replacement value.  That way, if you do suffer a loss, you will not be out of pocket to get back to business as soon as possible.  You will have to adjust your coverage periodically as you acquire or dispose of property.  You should also be careful to update the replacement values as time goes by.

Insurance companies evaluate potential customers by looking at the risks inherent in their businesses.  Fire risk is one of the main factors in determining the cost of property insurance.  Building or leasing a fire-resistant building should reduce premiums significantly.  You should also make it a point to keep your premises neat and tidy.  A location with piles of boxes and debris is a much higher fire risk.

Ways to reduce risks

1.  Check smoke detectors on a semi-annual basis and maintain written records.

2.  Maintain all fire safety equipment.

3.  Maintain emergency lighting and illuminated exit signs in proper working order.

4.  Develop a daily inspection routine of the premises, taking immediate steps to correct any hazards.

5.  Avoid overloading electrical outlets.

6.  If you live in a flood-prone zone area, determine whether your property is above or below the flood-stage water level.

7.  Know the history of flooding in your region, the warning signs of flooding, and the items you need to be prepared.

8.  Keep disaster supplies on hand.

Standard Coverage

A typical business owner’s policy includes property and liability insurance.  The property insurance portion of a Business Owner’s policy is available most often as named-peril coverage. This provides compensation only for damage caused by events specifically listed in the policy (typically fire, explosion, wind damage, vandalism, smoke damage etc)

Some BOPs offer open-peril or “all-risk” coverage;  this option is available from the “special” BOP form rather than the “standard”.

Types of property covered by a Business Owner’s policy usually include:

Buildings:  Owned or rented business premises, additions and additions in progress, outside fixtures.

Personal business property:  Any items owned by the business or business owner or owned by a third party but kept temporarily in the care, custody or control of the business or business owner.  To be covered by a Business Owner’s policy, business property must be stored or kept in specified proximity of business premises (e. g. within 100 feet of the premises).

In addition, many business owner’s policies include business interruption insurance as part of their property coverage.  Business interruption insurance provides up to 12 month’s income for covered businesses when they are forced to shut down operations because of a covered property event.

The liability portion of a business owner’s policy offers coverage for third parties who suffer bodily injury, property damages, advertising injury or personal injury on a covered business premises or caused by the business’s owner or employees.  This coverage typically takes the form of compensation for legal fees related to third-party lawsuits over such incidents (including lawyer’s fees, settlements and court costs).  In addition, BOP liability coverage may include compensation for medical expenses that result from an injury to a third party on a covered business’s premises for up to one year after the incident occurs.  In addition to standard coverages, most insurance providers offer optional additions or endorsements on business owner’s policies that business owners can use to tailor a policy to their specific needs.

Exclusions and Optional Coverages

Business owner’s policies do not include the following types of insurance:

Liquor Liability insurance for businesses that sell or manufacture alcohol

Professional liability insurance

Worker’s Compensation

Health Insurance

Disability Insurance

Auto Insurance

Often commercial fleet insurance is not covered in a Business Owners Policy, and needs a separate policy.  Another exclusion often seen in a business owners’s policy is equipment breakdown or mechanical equipment breakdown insurance, which also may be known as boiler and machinery insurance.  This type of coverage will cover repair or replacement of equipment and some revenue loss in the event of a loss as it impacts your business and its day to day operations.  Furthermore, take a look at debris removal.  You may have flood insurance, but not debris removal, or only a small coverage limit.  Imagine the cost of removing a total loss before having to rebuild.

Many insurance companies offer businesses the option to customise a BOP based on specific coverage needs.  Optional property endorsements that can be added to a BOP include coverage for certain crimes, spoilage of merchandise, computer equipment, mechanical breakdown, forgery and fidelity bond, but the coverage limits for these inclusions are typically low.

Eligibility

Business owner’s policies are not available to every business.  Eligibility requirements vary among insurance providers, but typically include limitations to:

Class of business (eligible classes include small restaurants, retail stores, apartments, office-or service based businesses, wholesale distributors and contractors).

Location of the majority of business operations (most BOPs require businesses to complete primarily on-premise business).

Size (area) of a business’s primary location.

Revenue :  Less than $5 million sales per annum.

Employees:  Less than 100 employees in the business.

 

 

 

Cyence

Hypothetical hacking of a cloud service provider, as well as cyber attacks on computer operating systems worldwide, could result in losses of $120 billion. This is a report by Lloyds of London in conjunction with Cyence, a risk modelling company. Cyence has raised $40 million to help insurers understand the impact of cyber risk.

Insurers are struggling to obtain accurate estimates, however, the problem is that they lack historical data. Many companies have yet to purchase cyber policies. By October 2016 only 29 percent of U. S. businesses had done so.

Cyence allows the insurance industry to figure out the impact of cyber risk in terms of dollars and likely incidents. The available platform combines risk modelling, cyber risks and big data. It assists the insurance industry in devising transformational insurance products. Cyber risk accountability and hazards are basic in comparison to other insurance options.

The software community accepts that code is not released without error. It is estimated that for every 1000 lines of code, there will be approximately 15 – 20 bugs. (McConnell 2004). These bugs lead to weaknesses through which malicious actors bypass safeguards or misuse systems.

Code volume and complexity is growing. The original Apollo 11 mission, i. e. the mission that landed people on the moon, consisted of 145,000 lines of code (Johnson 2012). Today’s cars run more than 100 million lines of code.

The ageing of software over time is another problem. Companies run risks by running older operating systems. Not only are they at risk but also companies they deal with outside the network.

The recent “Wannacry” attack showed that the longer software is out in the market, the more vulnerable it becomes. Cyence wants to assist the insurance industry in this regard when the company is promoting cyber risk insurance products.

Netcraft reported that “More than 600,000 web-facing computers which host millions of websites are still running Windows Server 2003, despite it no longer being supported.

Cyence is bringing these facts to the attention of the cyber risk insurance community.

 

 

Private Health Insurance

Private Health Insurance may be obtained on a group basis.  A company may choose to cover its employees.  On the other hand private health insurance may be purchased by individuals for their own account. According to the United States Census Bureau, about 60% of Americans are covered through an employer.   Approximately 9% purchase private health insurance directly.

Employer-Sponsored

As part of an employee’s benefit package, employers pay for private health insurance on behalf of their employees. Most private health insurance in the United States is therefore employment-based.  Employers in general pay about 85% of the insurance premium for their employees and 75% for their employees’ dependents. The employee pays the remaining part of the private health insurance premium due.

Regarding private health insurance in the United States, the range of products is similar to those provided through employers. However, average out-of-pocket spending is higher in the individual market. Examples are higher deductibles, co payments and other cost-sharing provisions. A major medical health insurance policy is the most commonly purchased form of individual health insurance.  It is primarily a catastrophic plan. However, qualified preventive benefits are still covered at 100% without any waiting period or copayment.

Most consumers in the individual market do not receive any tax benefits. Self-employed individuals receive a tax deduction for their private health insurance for additional tax benefits.

Age and health status affect premiums significantly in states that allow individual medical plan underwriting. The Patient Protection and Affordable Care Act, which came into effect in 2014, prohibits any discrimination against or charging higher rates for individuals based on pre-existing medical conditions.

The Hartford Courant, the largest daily newspaper in the U. S. state of Connecticut, reported in August 2008 that competition was increasing in the individual health insurance market. More insurers were entering the market with an increased variety of products as well as a broader spread of prices.

New Types of Private Health Insurance

High-deductible health plan (HDHP)

These plans primarily provide for catastrophic illness.  They thus have higher deductibles than traditional health plans. Very little coverage is provided for everyday expenses.  Therefore they have potentially high out-of-pocket expenses. Various forms of savings plans are coupled with these plans.

Tax-preferenced health care spending account

In 2003 President George W. Bush signed into law the Medicare Prescription Drug Improvement and Modernisation Act.

This law created:

Health Savings Accounts (HSAs) which are tax-deductible. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design. The minimum deductible is $1200 for individuals and $2400 for families.

Untaxed private bank accounts for medical expenses, which can be established by those who already have private health insurance. Withdrawals from HSAs are only penalised if the money is spent on non-medical items or service. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan.

There are a number of restrictions on benefit design. The minimum deductible is $1200 for individuals and $2400 for families. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design.
To deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design.

Limited benefit plan

These plans pay for routine care and especially relevant do not pay for catastrophic care.

Discount Medical Card

This option is becoming more popular. These cards are not insurance plans but provide access to discounts from participating healthcare providers. While some offer a degree of value, there are serious potential drawbacks for the consumer.

Due to the higher prices of and limited access to private health insurance, discount medical cards are growing in popularity. After private health insurance price hikes, some small businesses and individuals drop their private health insurance.  They then obtain discount medical cards.

A person with a pre-existing condition may find the card attractive as the pre-existing condition may make them only eligible for high-priced policies. No medical examinations are required. All people regardless of age or pre-existing condition pay the same cost.

Unfortunately there are consumers who are under the wrong impression.  They believe that the cards are insurance policies. There is no data on how many people have a discount medical card. Promoters of discount cards are generally not regulated or licensed. This results in few standards that apply to sales or sales methods. Marketing materials that are used include scare tactics, misleading information and exaggeration to attract buyers.

Short Term Health Insurance

These plans have a short policy period (typically months) and are intended for people who only need private health insurance for a short time period.  Temporary health plans offer individuals and families an affordable solution.  The application process is quick and easy.   There is peace of mind that comes with knowing you have health insurance should an accident or unexpected illness occur.

This type of coverage helps protect your health and finances when you are in between major medical insurance plans. Because temporary health insurance plans are not intended for the long term, their benefits are less robust than major medical plans. They are not considered qualified plans under Obamacare and, therefore, do not include the essential health benefits. A temporary health insurance plan will not prevent you from owing a tax penalty for going without minimum essential coverage. Additionally, temporary plans may still deny applicants or limit coverage based on pre-existing conditions.

Health Care Sharing

A health care sharing ministry is an organisation that facilitates sharing of healthcare costs between individual members who have common ethical or religious beliefs in the United States. Twenty eight states have laws that recognise health care ministries as distinct from health insurance organisations.  240, 000 Americans participate in health care sharing. Among those 240, 000 participants, more than $180 million are shared per year to pay for one another’s medical bills.

Perpetual Home Insurance

Perpetual Home Insurance is quite a rare option that a homeowner would choose over and above traditional home insurance. This policy is written to have no term, or date, when the policy expires. From the effective start date, the coverage exists for perpetuity.

The insured deposits money, called a deposit premium, with the insurer.  It is many times larger than the cost of a non-refundable annual premium for a traditional home insurance policy. When you no longer need the coverage, the deposit premium is returned to you.

The deposit required for perpetual home insurance is usually 15 – 20 times the annual cost of a traditional insurance. The perpetual home insurance company invests the deposit.  It uses the proceeds of investments (interest and dividends) to cover claims, administrative costs and of course profits. Since the insurance company has your deposit, you lose the ability to invest in alternatives like stocks bonds and savings accounts.

The best reason to choose a perpetual home insurance policy is for the tax benefits.

Payments for traditional home insurance are not deductible. That is to say, if you pay $1000 per year for insurance and you are in a 25% marginal tax bracket, you must earn $1, 333 to pay the insurance plan. (25% of $1, 333 is $333 – the portion that is taken by the government). The non-cash insurance benefit from a perpetual home insurance company is, however, not taxed as income to the recipient.

All things being equal, a perpetual home insurance plan is the fixed rate? $1000 of insurance that often accompanies a perpetual home insurance policy. This allows you to purchase additional insurance as your property value increases at a predefined purchase rate.

WHAT ARE THE RISKS?

While it may at first seem that the $15, 000 deposit premium is the most significant component of the risk, it is not. As with any insurance decisions, the most important question is whether the company is prepared to pay in the event of a substantial claim.

This is the question that should be asked of all insurance companies, both traditional and perpetual. It would serve a purchaser well to investigate the company as well as its financial performance before signing up. Fortunately, in the United States, there are considerable capital retention regulations placed on most insurance companies where you are only at risk in the event of a claim. With a perpetual company you constantly have the deposit premium at risk.

Essentially you are gaining the tax and fixed purchase-rate benefits at the expense of increased risk.

EVALUATING PERPETUAL INSURANCE INVESTMENT PERFORMANCE

If we assume perpetual home insurance costs 16 times an annual insurance policy, that means an average tax-free return of 6.25%. If you are in the 25% tax bracket, this is equivalent to an 8.31% return.

You can then compare this with other taxed and tax-free options (like mutual bonds) to determine whether the investment makes sense. Of course, the 16 x assumption is important. If the number rises, say to 25 X, it may be better to invest in something else and simply buy the traditional annual option.

PERPETUAL HOME INSURANCE vs TRADITIONAL INSURANCE

Given that you are investing a sizeable lump sum of money into a single company, we think perpetual insurance makes sense only for the people who have:

More than $100, 000 in non-home, non-retirement investment assets;

Are in a tax bracket at least 25% (the higher the bracket, the bigger the advantage);

View their perpetual policy as a component of an overall coordinated investment strategy;

Have no high interest credit card or other debt;

Are willing to put in the effort to evaluate the insurance company.

An example:

As of the end of 2013, Baltimore equitable had assets of $156, 000 million, nearly all of it liquid, and liabilities of $47, 000 million in the form of deposits. It means they could refund every dollar of deposit they hold 3.3. times.

A few companies that offer the coverage:

Mutual Assurance
Cincinnati Equitable
Baltimore Equitable
Philadelphia Equitable