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The Business Side: Are you properly insured?

April 25, 2003
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Let’s revisit a subject that is, for most companies, the No. 3 expense besides payroll and building expenses: insurance. You may be surprised at how many different types of insurance are available and the strategy needed to suit your company’s needs.

Medical Insurance

Medical insurance is by far the most expensive insurance cost for employers. Medical insurance is best provided through a group plan; the best way for employees to keep insurance premiums down is to raise their deductibles.

Many state or national professional associations have an arrangement with medical providers through a member group plan. Today, many companies provide coverage to employees including the co-pay amount. Employees pay for coverage of their family members through payroll deductions. In an effort to control the cost of medical insurance, many companies use some type of managed care insurance. Some of the most popular plans are:

  • Health Maintenance Organization (HMO)

    Most HMOs offer members a wide range of health benefits including preventive care for a set monthly fee. An HMO usually covers only doctors within that HMO. If you go outside the HMO, you have to pay the bill.

  • Preferred Provider Organization (PPO)

    A PPO has arrangements with doctors, hospitals and other care providers who have agreed to accept predetermined fees from the insurer for their services. In many cases if you go to providers in the network you pay a co-pay amount. If you go to a provider outside the network you may have to pay a higher co-pay amount.

  • Point-of-Service (POS) Plan

    In a POS plan, there are primary care doctors who make referrals to other providers in the plan. If the doctor makes a referral outside the network, the plan still pays most or all of the bill. Generally, in a POS plan, members can refer themselves outside the plan and still get some coverage.

If you need insurance before your employer’s policy becomes active (some employees have to wait a grace period of three months or more), there are policies available. I recently came across a brochure titled “Major Medical Insurance for People with Temporary Needs.” The brochure referred to those who are likely to need temporary medical coverage—those between jobs or recently laid off, recent college graduates, those waiting for medical coverage and dependents becoming ineligible for coverage under a parent’s health plan. This proves there is a plan out there for everyone!

Business/Liability Insurance

Business insurance comes in many types. The most common is insurance to protect a business from injury claims. Renters may also get coverage for glass breakage in the building, and fire or flood damage. Business owners can also include coverage for loss of business if a business cannot operate due to damage to the building. Property owners can choose to insure their buildings much like their homeowners policies do. Owners should have at least a one-half million dollar coverage for personal injury; $1 million is even better. A large injury claim could put you out of business if you don’t have proper insurance.

Vehicle Insurance

In today’s complex world of surveying, vehicle insurance may not only include automobiles and trucks, but snowmobiles and four wheelers, too. Some companies may also insure boats. When shopping around for vehicle insurance, it has been my experience that in most cases the low rate is the best choice. Knowing the agent does little good when filing a claim as claims are turned over to adjusters that pay claims according to preset guidelines. What will make a difference in the cost is the amount of the deductible. Most company business policies should consider having $1,000 deductible per vehicle. This will help keep the premium at a lower rate.

Some insurance companies want a list of licensed drivers who will operate the vehicles, and good driving records help. When shopping for this type of insurance, you may want to shop around for cost comparison.

    Following are the different types of coverage available in vehicle policies:

  • Bodily Injury Liability—to cover injuries the policyholder causes to someone else.

  • Medical Payments or Personal Injury—to cover treatment of injuries to the driver and passengers of the policyholder’s vehicle.

  • Property Damage Liability—to cover any damage the policyholder causes to someone else’s vehicle.

  • Collision—to cover any damage to the policyholder’s vehicle from a collision with another vehicle, a tree, etc.

  • Comprehensive—to cover any damage to policyholder’s vehicle that is not in a collision with another vehicle. Covered risks include fire, theft, falling objects, explosion, earthquake, flood, and in most cases, civil commotions.

  • Uninsured Motorist Coverage—to cover the treatment of policyholder’s injuries including vehicle resulting from an uninsured motorist.

    Life Insurance

    Term Insurance
    Term insurance provides protection for a specified period of time, typically from one to 20 years. It pays death benefits only if the policyholder dies during the time period. Some policies can be automatically renewed at the end of the coverage period or converted to permanent insurance.

    Advantages: You’ll get more insurance for the money and it is a good benefit to provide along with a medical policy. It is very common for companies to provide employees term insurance equal to one years’ salary.

    Disadvantages: Premiums increase at each policy renewal date because of increased age of insured. There is no cash value on the policy, only the death benefit.

    Permanent Insurance
    Permanent insurance provides life-long coverage if you continue to pay the premiums. Premiums are based on age at time of purchase and remain level during the life of the insurance. This policy will accumulate cash value. There are four basic types of permanent insurance:

    1. Whole Life (also called life or ordinary life). This type has a fixed interest rate and develops cash value.

    2. Universal Life. This type has more flexibility than whole life. Policyholders can change the death benefit, amount of premium and payment frequency. These policies are interest-driven. In a low interest period, an additional premium may have to be paid.

    3. Variable Life. This type has death benefits and cash values that vary with the performance of an underlying portfolio of investments that you select. Both cash value and death benefit are not guaranteed. They can go up as well as down.

    4. Variable Universal. This type combines the premium and death benefit flexibility of universal life with the flexibility and risk of variable life.

Advantages: Permanent insurance requires steady payment over a long period of time, but policyholders cannot lose coverage because of medical problems.

Disadvantages: Most investment brokers consider the investment part of these plans to be a very poor return on the money. Investments and insurance should be handled as separate issues.

You can see how complex insurance topics can be (and there is much more to cover). You may want to assign someone in your company the job of keeping up with insurance costs and options. Don’t trust an agent to always have your best interest at heart.

To find out more about insurance, click on the Insurance Information Institute website at www.iii.org.

To learn more about health insurance, click on the Health Insurance Association of America website at www.hiaa.org.

To check ratings of insurance companies, click on www.ambest.com, www.moodys.com or www.standardpoor.com.

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