Tag Archives: premium

Prize Indemnity Insurance

This type of insurance is taken out for a promotion in which the participants are offered the chance to win prizes. The promoter pays a premium to an insurance company for prize indemnity insurance instead of having to keep cash reserves to cover large prizes.

One of the earliest and most common forms of prize indemnity insurance is hole-in-one insurance. A golf tournament host or sponsor purchases this type of insurance. For example, if the golf sponsor offers $10, 000 for a hole-in-one on hole 17, your insurance company reimburses you the $10, 000 you have to pay out if a participant makes the shot. The odds of an amateur golfer hitting a hole-in-one on an arbitrary par 3 are about 1 in 12, 500. This is according to information published in the newspaper, USA Today. These low odds allow golf tournaments to offer expensive prizes to golfers able to hit a hole-in-one during tournament play.

Typically, these hole-in-one contests operate as part of a marketing promotion. A car dealership might offer a new car from that dealership as the prize for hitting a hole-in-one.

Especially relevant is the relationship between the tournament host and the sponsor. It is usually set up to provide advertising for the sponsor. The sponsor’s name will also be  prominently displayed next to the prize during the tournament.

Companies that provide hole-in-one prize indemnity insurance may furthermore provide signs or other accessories to help the tournament host promote the hole-in-one prize. The insurance contract between the golf tournament and insurance company will detail rules such as :

1. which holes on the course the prize will be insured on:
2. how to verify the hole-in-one was achieved legitimately;
3. what to do if a contestant hits a hole-in-one on a hole other than the insured hole.

Variables that furthermore affect the cost of the hole-in-one prize indemnity insurance include:
1. the number of participants in the tournament;
2. the skill of the participants (amateurs vs professional golfers);
3. the length of the insured hole;
4. the value of the prize being offered.

Many holes-in-one are not recorded. Jack Nicklaus has 20 aces; his last came in a practice round at the 2003 Senior British Open, when he was 63. Gary Player has 19. His most recent was when he was 70 in the pro-am of the Nelson Mandela Invitational in South Africa. Arnold Palmer has 18. He was 74 when he made his last one, in a casual round at the Bay Hill course in Orlando. Tiger Woods has 18.

Interesting hole-in-one snippets

Ryder Cup: Nick Faldo’s ace at the 14th in 1993 at The Belfry was only the second recorded in the history of the match.
First recorded: The earliest recorded hole in one as in 1868 at the British Open by Tom Morris on the No. 8, 145 yard hole at Prestwick.
Four in one: In less than two hours play in the second round of the 1989 U. S. Open at Oak Hill Country Club, Doug Weaver, Mark Wiebe, Jerry Pate and Nick Price each aced the No. 6, 167 yard hole. The odds against four professionals achieving such a record in a field of 156 are estimated at 1.89 quadrillion to 1.
The longest recorded straight drive hole-in-one is believed to be 517 yards by Mike Crean at the par 5 No. 9 at Green Valley Ranch Golf Club in Denver in 2002.

MOTOR RACING

Prize indemnity insurance is also used in motor sport. The highest recorded payout was $250, 000 during the 1992 Interserie. The 1992 Zolder 966 driven by John Bartlett at the Interserie in Belgium won $250, 000 for a podium position paid out by Lloyds of London.

OTHER USES

Coverages are offered for other contests as well. Examples are half-court shots in basketball, field-goal kicks in football, home runs in baseball, blue-line goals in hockey and also retail and casino-based promotions.

In the 2005 Super Bowl, prizes were set to be awarded for several events, including a return of the opening kickoff for a touchdown, a safety, and a fourth-quarter field goal of 50 yards or more. Prize indemnity insurance was purchased to cover all these events. However, none of the events occurred in the game.

In 2008 an insurance provider demanded that RTL (Europe’s leading entertainment group) and CBS toughen million dollar win provisions after The Price is Right $1, 000, 000 Spectacular produced three millionaires in the six episodes produced that season. After the four episodes aired with new rules RTL and CBS have not produced any further “million dollar” episodes since, possibly due to insurance concerns.

Policy premiums are based on the number of participants, the amount of the prize being offered and the parameters of the contest itself.

The parameter refers to the length of the hole on which the prize is being offered. US Hole in One’s average policy covers a $25, 000 prize for a contest involving 100 golfers and a 165 yard hole, for a $360 insurance premium.

Usage Based Auto Insurance

Usage based auto insurance has arrived. Getting a discount on your auto insurance based on your specific driving habits is now possible. Insurance companies are now able to track your driving habits and base your auto insurance savings on how good of a driver you are. There are devices available that plug into one’s car to track the driving habits of the driver electronically. It is simply a device that plugs into one’s car’s onboard diagnostic port. The onboard diagnostic port is located under the steering column in most cars. It can be simply plugged into the port and through wireless technology one’s driving habits can be tracked and monitored to help the insurance company to determine a savings based on one’s specific driving habits. The driver can usually also view their own driving information through the insurance company’s website.

Usage based auto insurance is growing. Progressive Insurance was the first insurance company to widely offer its usage based auto insurance device and has been doing so for a while now with great success. Progressive offers a “pay as you drive” program called Snapshot. It gives you a personalised rate based on your driving. The better you drive, the more you can save. It is available in most states except AK, CA, HI, IN and NC. Snapshot collects driving data like how many miles you drive, the time of day you drive and how often you make sudden stops will be collected. You can review your driving snapshot anytime by logging in to your policy on ProgressiveAgent.com

Progressive will apply any discount you earn about 30 days after you plug in your Snapshot device. Then, when you renew your policy, Progressive will set your personalised Snapshot discount. You then keep your discount for as long as you are insured with Progressive. If you make a significant change to your policy, Progressive may ask you to take a new snapshot of your driving.

Sprint has launched a connected car offering for automotive insurance companies. The IMS UBI intelligence tool offers insurers a way to accurately determine a driver’s policy premium based on their driving behaviour. Drivers can choose to plug a telematics device into the port of their vehicle, which will measure metrics such as distance travelled and their braking and acceleration patterns. As a result, they may benefit from a lower premium for proving that they are a good driver. Insurers could also use the service to levy a higher premium on drivers who are not. The operator teamed up with connected car solutions provider Intelligent Mechatronic Systems (IMS) to devise the solution.

State Farm and Ford have recently announced that they are jumping in on the usage based auto insurance market as well. With all of these companies going in the direction of offering usage based auto insurance, it is important drivers determine if it is the best option for them.

Metromile is a California-based insurance startup funded by New Enterprise Associates, Index Ventures, National General Insurance/Amtrust Financial, and other investors. It offers a pay-per-mile insurance product using a device that connects to the OBD-11 port of all automobiles built after 1996. Metromile does not use behavioral statistics like type of driving or time of day to price their insurance. They offer consumers a low base rate per month and a per-mile rate ranging from 2 to 11 cents per mile, taking into account all traditional risk factors. Drivers who drive less than the average (10, 000 miles) per year will tend to save.

So, who would be best served by a usage based auto insurance device? Of course, anyone who is a great driver already and wants to make sure they are getting a good deal on their insurance for doing so. But, there are other applications where usage based auto insurance devices would be helpful. The first thing that comes to mind for parents out there would be how great of a device this would be to use to monitor their teen driver. We all know it is well documented that teen drivers have some of the highest accident rates. The usage based auto insurance device is probably one of the best tools a parent could have to keep track of how their teen is driving.

Along with tracking the driving habits of one’s teen, the usage based auto insurance device will also be able to track the actual time of day that the vehicle is being driven. Also, the parent can be alerted if the device is removed. It is easy to see why a usage based auto device would be helpful for a parent of a teen along with someone who knows they are a good driver and wants to pay less for their insurance based on their driving habits. A usage based auto insurance device can also be a good tool for the elderly to use so they can monitor their own driving habits in order to assist them in noticing any changes in their driving habits which could help them determine if a health problem is arising that could be impairing their driving.

In addition, it could be a great tool for someone who acknowledges that they do not have the best driving habits, knowing their insurance company is tracking their habits as if their agent was in the car with them, could be a great tool for changing one’s negative driving habits into positive ones.

Buy-Sell Agreements

A buy-sell agreement, also known as a buy-out agreement, is a legally binding agreement between co-owners of a business. Such an agreement stipulates the rules of the situation if a co-owner dies or is forced out of the firm or chooses to leave the business of his/her own free will. In simple terms, it may be thought of as a sort of premarital agreement between business partners and is sometimes referred to as a “business will”.

The purpose is that the business can continue to operate with as little disruption as possible for the surviving business owner (s), as well as ensuring that the estate of the deceased business owner receives fair value for his/her business interests, as well as settlement of the credit loan account.

Where a business is held in a trust (or a corporate entity such as a company) the reality is that even though the trust or corporate entity can continue to hold the business interest in perpetuity, there is often only one of the trustees/shareholders who is directly involved in the business, who influences the success of the enterprise and upon whose death and thus, in all likelihood, the trust or entity would no longer wish to continue to hold its interest in the business, as it would not make commercial sense to do so.

Why it is important for the surviving business owners’ perspective to have a buy and sell arrangement in place.

1. The surviving business owners may want to buy the deceased’s interest in the business, but have to raise finance to do so. Therefore they will be paying interest on the finance raised which would mean that over time they will be paying more than the original purchase price of the business.
2. Should the surviving business owners not manage to raise finance to purchase, it could mean that the deceased’s spouse and/or dependents would become co-owners. They may not have the skills or expertise to be of value and would be a drain on the business.
3. If the deceased as co-owner had a credit loan account, this must be settled on his/her death and if there is insufficient liquidity in the enterprise, this could present a serious problem.

Implementing a business assurance arrangement

1. The business’s accountant or auditor should establish the value of the business.
2. If credit loan accounts are to be included in the buy and sell arrangement, these values should be determined.
3. In order to purchase the respective business interest in the business, life cove and/or disability cover is required.
4. To make a proposal in respect of the buy and sell arrangement the business owners, details of their marital regime must be established.
5. All the necessary documents to obtain life/disability cover must be completed in full at the Life office.
6. A formal buy and sell agreement must be drawn up and signed. It is critical that the parties do enter into the buy and sell agreement, as they need both of the signed agreements and life insurance in order to have a binding and effective buy and sell arrangement.

In an entity purchase buy-sell agreement, the business itself buys separate life insurance policies on the lives of each of the co-owners. The business usually pays the annual premiums and is the owner and beneficiary of the policies.

In a cross purchase buy-sell agreement, each co-owner buys a life insurance policy on each of the other co-owners. Each co-owner usually pays the annual premiums on the policies they own and are the beneficiaries of the policies. If your company has a large number of co-owners, multiple policies must be purchased by each co-owner. A wait and see (or hybrid) buy-sell agreement allows you to combine features from both the entity purchase and cross purchase models. The business can buy policies on each co-owner, the individual co-owners can buy policies on each other, or a mixture of both methods can be used.

The buy-sell agreement should be fully funded

The amount of insurance coverage on your life should equal the value of your ownership interest. Then when you die, there will be enough cash from the policy proceeds to pay your family or estate in full for your share of the business. But if all that is affordable is insurance coverage for a portion of your interest, you might want to go ahead and fund that amount. Later the company may be able to increase the amount of insurance or use additional funding methods. In the meantime, the agreement should specify how your family or estate will be paid.

The Value of the business could change overtime

What if the insurance proceeds turn out to be less than the value of your business interest, due to growth in the business? Your surviving family members might end up getting less than full value for your business interest. Your buy-sell agreement should specify how the valuation difference will be handled.

Conversely, the insurance proceeds might be greater than the value of your business interest when you die. Your buy-sell agreement should address this potential situation upfront and specify whether the excess funds will belong to the business, the surviving co-owners, or your family or estate.

Should Group Life Insurance be used?

Using a company’s group life insurance plan to fund a buy-sell agreement is generally not recommended. Normally, group life insurance premiums are tax-deductible to the company. But premiums are no longer deductible if the business is the beneficiary.

Possible negative tax consequences

For policies issued after August 16, 2006, the death benefits of life insurance on the life of an employee payable to the employer/policy owner may be subject to income taxes unless an exception applies.

Assume your business is a corporation or is taxed as one. When one of your co-owners dies, his or her estate becomes the owner of the insurance policies covering you and the other co-owners of the business in a cross purchase agreement.

If these policies are then transferred to the surviving co-owners to pay for future buyouts, a transfer-for-value (gain) may occur, and a portion of the proceeds received from the transferred policies may be taxable.

If a policy is cancelled (surrendered) for cash to buy out your interest while you are living, any gain on the policy is subject to federal income tax for the policy owner. Gain includes all policy loans outstanding at the time of surrender. Also, the policy may carry surrender charges.

Keeping track of your buy-sell agreement

Each year, the premiums on the policies must be paid, or the insurance will lapse. So monitor premium payments carefully. Your buy-sell agreement should include a feature requiring ongoing proof of payout . Also review the amount of insurance regularly. The insurance coverage may have to be increased periodically to reflect increases in the value of the business. Finally, periodically check the financial rating of your insurance company. The policies funding your buy-sell agreement will do your family no good if the insurer becomes insolvent.

 

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.