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Monthly Archives

May 2010

DISCOVER THE ADVANTAGES OF WHOLE LIFE INSURANCE

By Life and Health

In 2008, some 68 million Americans did not have Life insurance, according to the Life and Health Insurance Foundation for Education. However, if you have loved ones who depend on your income, a Life insurance policy is a must-have. If you were to die today, an effective Life insurance plan will ensure that all your family’s financial needs will be covered — from the monthly mortgage and utility bills to your child’s college education.

If you already have a Life insurance policy, good for you. You’ve taken an important step toward protecting your family. However, you might want to take a closer look at the type of Life insurance coverage you own. Most Americans who have Life insurance only carry the group coverage offered by their employers, according to a 2008 LIMRA International study. Unfortunately, this type of coverage typically ends as soon as you leave that job or retire.

If you want to make sure your family is covered well beyond your working years, you might want to consider Permanent or Whole Life insurance.

Whole Life 101

Although Term insurance typically only covers you for 15 to 20 years, Permanent or Whole Life insurance remains in effect for your entire life as long as you keep paying premiums. For the first few years after you purchase a Permanent Life insurance policy, your premiums will probably be higher than the actual cost of insurance protection.

Because you are contributing these excess premiums, the policy can accrue cash value (that’s why Permanent Life insurance is also known as Cash-Value insurance.) You can borrow against this cash value for a number of reasons, such as to pay off a mortgage, cover your child’s college tuition, or supplement your retirement income. Of course, these policy withdrawals or loans will reduce the cash value of your policy by the amount of your outstanding loan balance plus interest. You could even use your cash value as collateral for a business loan.

Generally, once a permanent policy is in force, your premiums will remain level. This ensures continual protection for your family as you age, even if your health becomes poor. Although Whole Life insurance commands an initial higher premium than Term Life, you won’t have to worry about re-applying every 10 or 20 years at a considerably higher rate as with Term Life.

A Personal Decision

Although almost everyone needs some kind of Life insurance, it’s up to you to decide whether a Permanent or Term Life policy is the best choice. It all depends on your specific needs and situation. If you are uncertain about what kind of Life insurance policy you should purchase, talk to one of our financial advisors.

HOW WILL HEALTHCARE REFORM AFFECT YOU?

By Life and Health

Just about everyone in the country is wondering how the passage of the health reform bill by Congress will affect them. According to Kaiser Health News, this historic legislation could have an effect on almost every citizen. People, even those who are unemployed, will be able to get medical care. But professionals who have been enjoying the best health coverage available might possibly see their benefits dwindle. What Are the Immediate Changes? There are certain things that will happen in the first six months after the bill is actually signed into law:

  • Insurance companies will not be allowed to put lifetime limits on coverage. This means that people with chronic health conditions will never “use up”� all of their insurance coverage.
  • People with children on their company insurance plan can keep unmarried dependents enrolled until they turn 26. This is very important because of the number of college graduates who are unemployed.
  • Insurance plans will be required to cover preventative health services such as colonoscopies, and screenings for things like osteoporosis, high blood pressure, diabetes, sexually transmitted diseases, and for smoking cessation counseling.
  • Pre-existing serious health conditions can no longer prevent people from getting Health insurance. They will be able to purchase coverage from a government-subsidized exchange. However, this coverage will not be available until 2014.

Health Insurance Will Be Required. Uninsured people will be required to purchase Health insurance by 2014. Subsidies will be available that reduce the premiums subject to income limits. Penalties will be imposed on people who do not purchase insurance that could be as much as 1% of their income.

Changes to Medicare. Tighter controls might be put on decisions for care that are considered too costly. The care provided to older people might even be restricted. Cancer screening could be denied for older citizens. The Medicare system will see a huge hit because approximately one-half of the health reform costs for the next 10 years will come from the Medicare budget.

Pre-Existing Illnesses and Loss of Coverage. Starting this year, the health reform bill will ensure that insurers can’t deny coverage to any child based on existing health problems. In 2014, this will be expanded to include all applicants. Within the first six months of the bill being signed into law, an insurer cannot drop policyholders except in cases of fraud.

Longer Wait Time to See Your Doctor. Millions more people will have access to health care but the number of healthcare workers will not grow quickly enough to keep up. You can expect to wait about twice as long to get in to see a doctor as you did in the past.

Changes to the Coverage You Get from Your Employer. Employers who offer high-value, “Cadillac’ health plans will probably begin to cut back on those benefits. If they don’t do so by 2019, they could face fines from the government. This could possibly mean no more vision or dental coverage or going to a specialist without a referral from your family doctor.

Benefits for Women. With this new health bill, insurers will have to cover maternity care the same way they cover any other medical procedure, but not until 2014. Employers will also be required to allow break time for mothers who are nursing and a private place where they can use their breast pump.

Losing or Leaving Your Job. If someone quits or loses their job, the same exchanges that help lower income people purchase insurance will be available. This means when you leave your job, you don’t necessarily have to pay the high COBRA costs. This is very important for people with a pre-existing condition. You might even be able to get free health coverage under some circumstances.

Higher Taxes. In 2013, Medicare payroll tax will go up for incomes over $200,000 a year.

REALIZING THE IMPORTANCE OF DISABILITY INSURANCE

By Life and Health

An old adage in the insurance business regarding the subject of Disability insurance goes like this:

“The odds are good that you will be laid up long before you are laid out!”

Although this statement might seem somewhat amusing, it is also very true. Individuals (especially males) between the ages of 30 and 50 will likely suffer an incapacitating injury or illness before they die. However, for many people, it is easier to imagine dying than becoming disabled.

Disability has sometimes been called “living death,”� and the implications of being totally disabled are frightening. Disability has far greater economic, relational, and social consequences than dying. Why? Because the disabled person continues to require assets (food, medication, support services) while no longer contributing to the family’s income. Not only is he/she not contributing, the individual is usually consuming a disproportionate amount of the assets the family needs to live on!

For still unexplained reasons, Disability Income Protection Plans have always seemed to lag behind other forms of protection, despite the fact that a long-term disability, which can be catastrophic, happens more frequently than most people think. Disability income provides essential protection against the loss of income due to an accident or illness.

There are two types of coverage: Short-term and long-term protection. Short-term coverage generally provides income replacement for a period of three to six months. Long-term coverage starts after a short waiting period and, depending on the specific policy, usually lasts two years, five years, or up to age 65.

The definition of disability is critical. The more liberal definition, which of course costs more, defines disability as being unable to do a specific job. This is called an “Own Occupation” definition. For instance, if a surgeon has an accident and loses the use of one of his hands and can no longer perform operations, he can still receive benefits even if he is working and getting paid to teach surgical techniques.

Under the more restrictive “Any Occupation”� definition, if that same surgeon accepts a position as a teacher, he would forfeit the benefits. Note, however, that an “Any Occupation” definition might be just fine for most occupations. Our financial professionals can help you decide which one is right for you.

A Cost of Living Adjustment (COLA) rider is very important since it adjusts the benefit annually according to the changes in the cost of living index. Although not critical for a short duration disability, over a 10 or 20 year time frame it is essential.

The waiting or elimination period mentioned earlier is also flexible: 30-60-90-120-180 days. Obviously, the longer the waiting period, the lower the cost. A good policy must be “Non-Cancelable” and “Guaranteed Renewable,”� which protects the insured from a company not renewing the policy and raising the premiums. You can obtain a Disability insurance policy through an employer group plan or as an individual. The group plans are less expensive but have far more restrictions and caps than an individual plan. What many people do not realize is that most benefits received under a group plan are taxable!

Highly compensated employees can seldom obtain the level of protection they need under a group plan because of coverage limits. The best way to make up the difference is to purchase a wrap-around individual plan.

Without Disability insurance protection, you can lose everything you own very quickly as the result of an accident or illness. Don’t gamble with your future.

DO YOU NEED A SEPARATE WATERCRAFT POLICY FOR YOUR NEW BOAT?

By Personal Perspective

Before you go out and purchase that new boat you have been dreaming about all winter, consider the importance of also purchasing the proper watercraft coverage that you will need for your new toy.

Many people mistakenly believe that their boat will be covered under either their Personal Auto policy (PAP) or Homeowners policy. Auto policies do not provide liability coverage or coverage for damage on boats. Homeowners policies might cover only boats that have low value or are low-powered. So before going out and purchasing a boat, contact us to discuss the proper watercraft coverage that you will need.

Here are some considerations when it comes to figuring out if you will need separate watercraft coverage for your boat. These types of boats will require a separate insurance policy:

  • Any boat valued at more than $1,500
  • A sailboat that is more than 26 feet long
  • Powerboats that have motors exceeding 25 horsepower

Insurance companies will often deny coverage for particular types of watercraft. These types of watercraft might be denied coverage:

  • Watercraft such as jet skis or wave runners, due to the high number of accidents with them.
  • Houseboats, homemade or kit boats, competition bass boats, and speedboats.
  • Boats that are more than 15 to 20 years of age, due to a higher loss frequency (Note: It is also wise to order a marine survey or inspection of an older boat before purchasing, which can point out deficiencies in the boat that could cause you to reconsider the purchase or renegotiate the price).

Finally, when it comes to purchasing the proper watercraft coverage needed for your new boat, also consider purchasing a Personal Umbrella policy. This policy would be in addition to a watercraft policy and is especially beneficial if you are going to purchase a speedboat, one designed for skiing or any other type of craft that has a higher potential for loss of life or damage. Umbrella policies are relatively inexpensive and will provide additional coverage above the liability coverage found in a watercraft policy.

If you purchase a Personal Umbrella policy, use the same insurance company that provides your Homeowners policy or Personal Auto policy.

HOW TO MAKE YOUR HOME UNATTRACTIVE TO A BURGLAR

By Personal Perspective

When driving down a street at night looking at houses, you are most likely drawn to the house with exterior lighting, neatly trimmed landscaping, and lights on inside. That’s because the house looks inviting and well cared for. Now imagine a burglar is driving down the same street. The things that drew you to the previous house are the same things that will turn that burglar away, looking for better opportunities. A property with no exterior lighting, overgrown landscaping, and possibly no one at home, invites criminal activity.

It is important to note that burglary is a preventable crime. Common sense dictates some of the steps you can take toward making your home safer and less attractive to burglars. The following are some general tips you should incorporate into your routine that can make the difference between the burglar stopping at your house or passing it up for another one further down the road.

The first line of defense between you and a burglar is to secure your home properly. Make sure your yard, driveway, and all entrances to your home are well-lit. Consider the use of lights on a timer or photocell, which turns lights on automatically at dusk and shuts them off at dawn. Trees and shrubs around windows should be cut back so you don’t give a burglar a place to hide while preparing to enter your home.

If you are going to be away from home for a period of time, leave a light on. Lights left on indoors, especially those on a timer that turn on when it gets dark and shut off at bed time, can be a deterrent to a burglar. The goal is to make it look as if you are home. Ask a neighbor to pick up your newspapers and bring in your mail. Along the same lines, if you will be gone for an extended period, arrange for your lawn to be maintained. Permitting your grass to grow high or get dry is a sign of neglect and can invite unwanted attention. If you have a garage, use it. Parking inside your garage on a regular basis makes it more difficult for a burglar casing your home to know whether or not you are really there.

Burglars will usually spend about five minutes trying to get inside your home. Make that task as difficult as possible by doing the obvious: Lock your doors and windows! If you forget to lock your back door, this can be viewed as an invitation by a burglar looking to get into your home quickly. In addition to the obvious, avoid spring bolt locks. It takes only a credit card to push open the bolt and allow access to the inside. Deadbolt locks should be installed on all exterior doors. The American National Standards Institute (ANSI) has established testing and ratings for deadbolt locks. Grade 1 locks are the best, with Grade 3 locks being easier to penetrate. Look for Grade 1 locks when shopping for a deadbolt. A key lock or pin-type lock works best for patio door, or any door with glass that could be broken easily to access a knob on a deadbolt. Heavy-duty strike plates should also be used to prevent a burglar from successfully kicking in your door.

When purchasing a new home, make sure all locks have been changed. Also, think about calling a reputable locksmith who can advise you on proper locks for doors and windows. Carefully preparing your home, including adequate locks, lighting, and regular maintenance, can make the difference between a burglar deciding to make a stop at your house or to keep driving.

FIND AFFORDABLE CAR INSURANCE FOR YOUR TEEN DRIVER

By Personal Perspective

If your teen is getting ready to put their hands to the wheel, it’s time to think seriously about Auto insurance options a dreadful thought for many parents, but with a little research and careful planning you might be able to obtain affordable Auto insurance for your teen. Let’s explore some ways to lessen the cost of your teen’s Auto insurance.

Proper Driver Training

Many teens opt for driver’s education in high school, and this is a wonderful way to decrease your teen’s Auto insurance rates right from the beginning. Many Auto insurance companies offer discounts to those who have completed a driver’s education course successfully. Not to mention driver’s education provides proper on-the-road training for your teen. The instructor can teach all the written and “unspoken” rules of the road while also showing proper driving techniques, including defensive driving. Knowing how to drive properly helps decrease the chances of careless driving, thus making your teen a much safer driver.

Law versus Fun

Emphasize to your teen that although driving is fun, it’s also a serious responsibility. Make sure they understand how the law works and the stiff penalties for speeding, racing, careless driving, drunk driving, running stop signs or red lights, not wearing seatbelts, parking in undesignated areas, etc. Explain that even one traffic offense can eliminate their chances for affordable Auto insurance in years to come, and might even cause them to lose their driving privileges for a while.

Does Your Teen Make the Grade?

Some insurers offer discounts to students who keep their grades up. This is somewhat of a reward for you as a parent and for your teen if they get good grades or maintain a high GPA (grade point average). Your Auto insurance company might offer this discount because insurers feel that a teen who demonstrates responsibility and carefulness in school is more likely to do the same while behind the wheel of an automobile. This can be used as an incentive for your teen as well. You might even offer a bonus allowance to your teen for keeping their grades up, using the money you’ll save with cheaper Auto insurance!

Choose Cars Wisely

Teens and sports cars – these words shouldn’t be used in the same sentence if you’re shopping for Auto insurance. Insurance companies frown upon teens buying or driving sports cars, even if the teen is a safe driver. Sports cars in general tend to carry higher insurance rates for drivers of all ages, but teens are especially vulnerable to temptation when it comes to showing off their new car and testing how fast it will go. Opt for a sedan or family-style car with all the safety features possible. The good thing about safety features is your insurance company might offer discounts for certain safety features such as anti-lock brakes, air bags, added frame support, and others.

Opt for an Add-On to Your Policy

When your teen first starts driving, consider adding them to your current insurance policy for a while. You can do this as long as you remain the primary driver of your vehicle. Then your teen will be able to enjoy the lower rates based on your discounts and age. If they only have a learner’s permit, check with your insurance company to find out if they should be added to the policy as a driver. Most will cover teen drivers automatically under your policy while driving with a permit.

Shop for the Best Deal

If you’re shopping for an Auto insurance policy for your teen, you’ll be surprised at the differences among companies. Every company varies in what it considers to be “high risk” drivers. Some insurers specialize in insurance for young drivers and are able to offer cheaper rates than others. Also, compare each company’s discounts for teen drivers. Some might offer more discount opportunities than others.

Having a teen driver creates awareness about road safety and Auto insurance like nothing else. Use these tips to guide you as you shop for Auto insurance that will provide the most coverage for your money.

ENSURE COMPLIANCE TO SAFETY PROCEDURES WITH BEHAVIOR MODIFICATION TECHNIQUES

By Business Protection Bulletin

A key step to implementing any new workplace program successfully is to gain complete acceptance by employees. That means not only must everyone on the job accept the changes, they truly must embrace them for the changes to really take hold. The best way to achieve that kind of commitment is to make the changes a part of your corporate culture. Mostly everyone would agree that no program is more important to make a part of your culture than a safety program.

The most effective way to convey a message to the group is also the most simple: Through language. Every organization has its own language, including terms that are common to everyday practices. Safety terms will become part of your company’s culture when they become part of every facet of the job. Workplace safety practices need to be communicated, and enforced. Safe as well as unsafe behaviors need to be outlined and posted, where all employees have an opportunity to observe them. It is critical that new employees be given a course concerning safety procedures, and understand fully the consequences of ignoring them.

In addition to employees understanding safety guidelines, it should become common practice and custom to carry out the safety rules. An organization’s customs are the accepted methods for getting things done on a regular basis. Although you might have clearly explained the consequences for violating safety practices, this is not always enough to ensure compliance. Compliance can be especially difficult for workers who have been on the job for a long time.

Long-term employees often develop a rhythm — a system of shortcuts, which helps them complete tasks quickly and efficiently. Sometimes the practices they use involve risks, but they avoid any adverse effects because they understand the risks, what kind of threat they pose, and how to countermand those threats. Often times, these workers continue to operate below the radar and management believes they are following correct procedures. However, they could be undermining any attempt to incorporate safety as part of the organization’s culture, because junior employees often mimic their behavior.

The best way to ensure compliance to safety guidelines is through behavior modification. This is a management technique that uses both positive and negative reinforcement to instill proper safety procedures. Employees are either rewarded in a tangible, visible way for promoting safety; or they receive negative consequences for ignoring safety practices. The best safety incentive an employer can offer is a monetary incentive. With monetary incentives, employees are given a bonus for completing the job without any safety violations. On the other hand, they are fined for unsafe behavior. The dollar amount of the reward or fine doesn’t have to be large to be effective; the fact that a behavior results in either a good or bad consequence is what motivates. The motivation is reinforced by the fact that employees are watching each other and more importantly, comparing.

Last but not least, there needs to be a clear indication that safety is a No. 1 priority. There should be an active safety committee and participation at meetings should be encouraged. When employees observe hazards, they need organized procedures to report and correct the dangerous situation. Most importantly, the outcome should be that the danger is eliminated and everyone on the job site must know how it has been corrected, especially if the correction required instituting a new procedure. It is extremely important that employees see positive results from their safety procedures, so that they will continue to be diligent in their future safety efforts.

TAKE SEVEN STEPS TO REDUCE THE RISK OF EMPLOYEE FRAUD

By Business Protection Bulletin

Most business managers and owners are well aware of the threat of loss from outsiders, and use a variety of methods to reduce this risk. From locks on the doors, to security guards and dogs, to complex electronic burglar alarm systems, many preventative steps are taken. However, it is often the case that less attention is dedicated to reducing the risk of theft by an insider. No one wants to believe that an employee would defraud the company of money deliberately. Most people want to trust their employees, and rightly so. But it only takes one bad apple to do significant damage. Depending on the person’s position within the company, and the length of time the theft continues, substantial losses can result. Business owners often have a tendency to believe “it can’t happen here.”� Unfortunately, employee fraud is quite common. Furthermore, no risk reduction measures can be guaranteed to keep it from ever happening or detect every instance.

Having said that, loss control experts recommend two general approaches to reducing vulnerability to theft by insiders: Measures to decrease the probability that employees will commit the crime, and measures to increase the perceived probability of discovery and punishment. Below are seven tips to help with both approaches:

  1. Institute an anti-fraud policy. Many employers wrongly assume they don’t need to discuss insider theft, since their employees know it is wrong. But experts say a strong, written anti-fraud policy, published in the employee handbook and/or posted on employee bulletin boards, helps prevent insider theft. The written policy reinforces the employer’s intent to maintain an honest, ethical environment, as opposed to one where it is regarded as common practice to steal from the employer.
  2. Ask employees to report suspected fraud, and provide guidelines for reporting fraud. Employees need to understand how to report any suspicion of fraud or theft. Honest employees will usually report fraud when there is a good policy for doing so. They are more likely to say nothing if they are not sure how to report the suspicious behavior of a co-worker.
  3. Maintain a business climate of loyalty and trust. Expectations influence behavior. When you expect employees to steal, some are more likely to do so, reasoning that there is no point in behaving honestly if they are already suspected of being dishonest. Maintaining an atmosphere in which employees feel trusted and valued and are rewarded for loyalty helps prevent insider theft.
  4. Encourage ethical business practices. The typical employee thief is often a first-time offender who rationalizes his or her behavior to avoid having to face up to their criminality. Employees who have a weak moral character are more likely to act on it in an environment where they see the business engaging in unethical practices. When the company promotes and rewards ethical business practices, the risk of insider theft goes down.
  5. Compartmentalize job functions. When the same person both approves and pays invoices, it is especially easy for a dishonest employee to submit bogus invoices and then pay them. Compartmentalizing duties helps to prevent this type of scheme.
  6. Ask your accountants to look for red flags that could indicate fraud. Among the methods accountants often recommend are accounting controls, built-in detection mechanisms, and reconciliation of records. Businesses increase the probability of discovery with frequent audits that include steps to uncover fraud. Make sure that accountants understand that you view the discovery of insider theft as an aspect of their duties and services. Utilize your accountants to survey either all employees or randomly chosen employees from time to time, asking whether they are aware of any misappropriation of company money, property, or resources.
  7. Look into any tips about employee fraud. Many dishonest employees are first brought to their employer’s attention as a result of a tip from an unhappy spouse or significant other. These tips should be investigated objectively. Sometimes employers ignore such tips, because they trust the employee in question, only to find out later that the tip was accurate. In such cases, the amount of the theft could have been lessened by taking the initial tip seriously.

In summary, to reduce the risk of insider theft, the employer’s position should be one of trusting employees in general not to steal, while at the same time being proactive about measures to help keep workers honest. Most employees will never engage in schemes to defraud, but unfortunately, there are always some who will. The dishonest employees are often the very people the employer would be least likely to suspect.

EXERCISE CAUTION TO PREVENT EMPLOYEE CLAIMS OF INVASION OF PRIVACY

By Business Protection Bulletin

It’s not easy being an employer. The business must offer competitive wages and benefits without over-paying. It must keep employees happy but still maintain workplace discipline. It must protect its customers and its assets without seeming to distrust its employees. Without being overbearing or acting as a strict parent, it must ensure that employees are doing their work and doing it well. Many employers, using modern technology, are keeping an eye on workers — literally. A 2007 study by the American Management Association and The ePolicy Institute revealed that:

  • 66% of employers monitor employees’ Internet connections
  • 65% use software to block employees’ access to some Web sites
  • 43% monitor employees’ e-mail
  • 45% monitor the time employees spend on the phone and the numbers they call
  • 16% record employees’ phone conversations
  • 9% monitor voice mail messages
  • 7% monitor employees’ job performance using video surveillance

Also, in certain industries employers search workers’ workstations and lockers, perform drug tests and physicals, investigate their backgrounds, and even monitor their activities outside of work. When an employer disciplines or fires a worker based on information it learned through one of these methods, the worker might become angry enough to sue the employer for invasion of privacy. Although federal and state laws generally permit employers to monitor workers’ activities and use of employer property, some suits succeed and all of them divert financial and human resources away from the employer’s main business. There are several things employers can do to avoid this.

  • Establish a workplace policy about non-business phone and Internet use, and include it in the employee manual. The policy should describe the extent to which the employer will monitor phone and Internet use, if any, and the consequences should employees violate the policy. Ensure that employees are aware of it by discussing it at staff meetings and asking them to document that they have read it.
  • Be careful about audio recording conversations. Although state and federal laws generally permit employers to use video monitoring of employees, some restrict the ability to make audio recordings or to listen in on conversations. Employers should become familiar with the wiretapping laws in their states before using audio monitoring.
  • Keep employee e-mails confidential. Employers have the right to monitor their employees’ use of the business e-mail system, but making e-mails public (absent some legal or business requirement) might violate employee privacy rights.
  • Include in the employee manual a written policy regarding employer searches of desks, workstations, and lockers. This should describe the employer’s right to conduct searches, the reasons it may do so, and the consequences should an employee refuse to cooperate. Conduct searches only when absolutely necessary for business or legal reasons, and take care to respect the employee’s dignity by doing the search out of the view of other employees.
  • Perform drug tests for legitimate business reasons and at appropriate times, such as during the hiring process and following a workplace accident. If the employer will administer random drug tests, it should have a written policy stating as much in the employee manual and it should conduct the tests with as little privacy infringement as possible.
  • Obtain a job applicant’s written consent for a background check, and investigate only those factors relevant to the position. For example, a credit check might be appropriate for a position that requires handling money.
    Keep employee information safe from individuals outside the company. Instruct managers and staff not to discuss personnel matters with outsiders and employees who do not need to know the information.

Employers must run an efficient operation, maintain a safe workplace free of harassment, make employees feel comfortable in their work, and make a profit. Following these steps will reduce the chances of employee lawsuits and allow the business to focus on its core mission.

WILL YOUR INSURANCE POLICY INTERFERE WITH YOUR CONSTRUCTION CONTRACT?

By Construction Insurance Bulletin

Construction contracts typically include insurance requirements for the subcontractor to meet. For example, the contract may require the sub to carry Commercial General Liability insurance with limits equal to or greater than a specified amount, such as $1 million per occurrence. It may also require the policy to include specific coverages, such as for liability assumed under contracts or for completed operations, and it may require the policy to name the owner and general contractor as additional insureds. These agreements are between the owner or general contractor and the subcontractor. As insurance consultant Don Malecki pointed out in a recent article, however, insurance companies are beginning to insert their own requirements into the writing of contracts by including special endorsements in their policies.

One endorsement he described affects the insured entity’s premium. The endorsement requires an insured who subcontracts work to obtain certificates of insurance from all subcontractors showing that the subs have certain coverages with at least the limits of insurance specified in the endorsement. Further, the endorsement requires that the subs’ insurance companies hold A.M. Best ratings of “A minus” or higher and be size class VII or higher; name the insured (the general contractor) as an additional insured on ISO endorsement CG 20 10 07 04 or a broader endorsement; and cover the general contractor on a primary basis. This endorsement does not affect whether the insurance company will pay for losses arising out of a subcontractor’s work for the insured. Instead, it affects the premium that the insured pays. When the company performs the premium audit after the policy term expires, the auditor examines the certificates of insurance the insured collected during the term. They compare the certificates with the insured’s records of subcontracted work. For every subcontractor from whom the insured failed to get a certificate or obtained a certificate that did not meet the endorsement’s requirements, the company charges a higher premium. Insurance companies calculate premiums for subcontracted work by applying a rate for every $1,000 of subcontract cost. This company charges one rate for subcontracts that meet the endorsement’s requirements and a much higher one for those that do not.

Another example Malecki gives is of an insurer actually requiring its insured contractor to include specific wording in its contracts. In his example, the company is demanding that the contract require the subcontractor to waive any immunity or limits it has for liability beyond Workers Compensation benefits for injuries to employees. Other companies may require special hold harmless wording, such as wording that indemnifies all of the general contractor’s owners, officers, directors, employees, and other interested parties from all liability resulting from any cause of loss. This provision may cause problems for the sub, as it may extend far beyond what the sub’s insurance company is prepared to cover. For example, by requiring indemnification for loss resulting from any cause, the wording implies that the sub will be responsible for pollution incidents. However, virtually all standard general liability policies exclude coverage for pollution.

Contractors should work closely with our insurance agents to determine exactly what requirements, if any, their insurance companies are imposing on their contracts. Some of these requirements might be steps that the contractor should contemplate taking regardless. However, contractors need to become informed about these requirements, so they can make appropriate plans and decide whether to accept coverage from a company that requires this.