Buyer Beware: Cheap Insurance is Cheap for a Reason

Cheap InsuranceWhen it comes time to securing insurance for your company, it’s smart to shop around to see what options you have. Everyone wants to save money. But cheap insurance may cost you more than you think.

As is often the case, cheap doesn’t always mean a good deal. Going for the cheapest option without looking into what your plan covers can cost you a lot of money in the long run.

Here are some problems you need to be aware of if you purchase cheap insurance.

Gaps in Coverage

When you pay less, you’re generally covered for less. Compare the coverage from all your quotes to make sure you’ll be covered for all scenarios. You’ll most often find that budget insurance options don’t cover what you need.

High Deductible

If you’re paying a low amount per month for insurance, you might end up paying a lot if you ever need to use it. Make sure you pay attention to the details so you know what it’s really costing you. In a situation where you have to use your insurance, you don’t want to added stress of spending a lot of money to do so.

Low Payout

Some insurance companies have a low cap of what they are willing to pay out in a year. The worst of them are in the low thousands. If you end up in a situation where you need to pay $100,000, your insurance might only cover 1% of that.

Unhelpful Customer Service

If you’re only paying for budget insurance, you can expect cheap customer service. Insurance can be complicated, and having someone at your insurance company to help navigate your problems and answers questions can be a lifesaver.

Unhappy Employees

Cheap insurance passes problems down to your employees. When your business’s health insurance coverage or workers comp doesn’t help your employees to the extent that it should, they are going to come complaining to you. Expect higher turnover and low satisfaction when you purchase cheap insurance.

Are you currently looking for insurance for your company? We’ve put together a guide on insuring your new business.


Coverage Gaps Tip Sheet


COBRA and Your Business

COBRA and Your BusinessFirst off, what is COBRA Insurance? The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows the continuation of group health insurance that would otherwise be terminated. It applies to group health plans maintained by: private-sector employers with 20 or more employees, employee organizations and state and local governments. COBRA allows the right to continue coverage temporarily at the group rates.

Eligibility of a Qualified Beneficiary

A qualified beneficiary is usually an employee, spouse or dependent child covered by a group health plan. They must be covered the day before a qualifying event. Other forms of qualified beneficiaries are retired employees (and their spouses and dependent children), and any child born to or placed for adoption with a covered employee during the period of COBRA coverage.

What is a Considered a Qualifying Event?

A qualified event is something that would cause an employee to loose health coverage. There are a number of qualifying events that trigger a qualifying event for a spouse or child of the dependent. The amount of time for the continuation of coverage depends on the qualifying event.

Employees:
  • Voluntary of involuntary termination of employment (other than for gross misconduct) (18 months)
  • Reduction in hours of employment (18 months)
 Spouse or Dependent Child:
  • Voluntary of involuntary termination of the covered employee’s employment (other than for gross misconduct) (18 months)
  • Reduction in hours of the covered employee’s employment (18 months)
  • Covered employee’s becoming entitled to Medicare (36 months)
  • Divorce or legal separation of the covered employee (36 months)
  • Death of the covered employee (36 months)
  • Loss of dependent child status under the plan rules (36 months)

Does Your Business Need to Offer COBRA?

Federal COBRA generally applies to employers that offer health coverage and employ 20 or more employees on 50% of its typical business days in the preceding calendar year. Both full-time and part-time employees count, but part-time employees only count as a fraction. The fraction is equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time. The determination of the number of hours required to be considered a full-time employee (or to determine the fraction for part-time) is based upon the employer’s employment practices, but not to exceed eight hours for any day or 40 hours for any week.

Determining the Number of Employees

An employer may determine the number of their employees on a daily basis or a pay period basis.

The result of using either method could yield different eligibility, but figuring based on a pay period basis could save you time. Remember, you can stop counting once you have the same result for 50% of the preceding year’s business days or periods. However, the basis used by the employer must be used with respect to all employees and must be used for the entire year.

It is important for employers to review the previous year’s payroll and determine if they are subject to Federal COBRA, or alternately a state continuation plan when applicable. If your COBRA eligibility has changed, you will want to notify your COBRA administrator, insurance carrier, and insurance advisor.

There are many aspects of COBRA that an experience advisor can assist you with. Maintaining compliance is very important for your business. Contact us for further assistance!

Funding a Buy-Sell Agreement with Life Insurance

Life Insurance to Fund Buy Sell AgreementsLife rarely goes according to plan. An unexpected death, disability, divorce, or another event can derail a business and create a huge financial impact on its success. Your business is likely your biggest investment and the future resource for funding your retirement.

All businesses should prepare for a multitude of issues that could put the future of the business in danger. For instance, who would manage/own the business upon retirement or unexpected death/disability of an owner?  Is there an internal candidate who is experienced enough to manage the business, or would the business need to be sold to an outside competitor? What about your family’s needs regarding the business?

A buy-sell agreement is an excellent solution to this risk. It is simply a “will” for how you want the business to transition on Your Terms based on certain triggers such as retirement, death or disability.

There are options for funding a buy-sell agreement, but some options open the door to other problems.

  • A company savings account would pay cash when an owner dies, but if death unexpectedly occurs, there may not be enough funds in the account to carry the business.
  • A loan could be obtained at the time. Unfortunately, interest could be high and it may create unnecessary risks for the surviving owners and business.

The best option to fund a buy-sell agreement is a life or disability insurance policy. These types of policies allow for instant cash/liquidity to be used in either continuing the business or preventing a fire sale, allowing proper time for a buyer to be found. Other advantages include: death benefits proceeds are generally income tax free, funds are purchased for pennies on the dollar, and premiums are likely to be significantly lower than loan interest.

Life insurance also offers the option of a Cross-Purchase Plan or an Entity Plan. In a Cross Purchase Plan, each owner purchases a life insurance policy on all other owners and is named beneficiary. In an Entity Plan the business purchases a life insurance policy on each owner and is named beneficiary of plan allowing the business to buy shares stock redemption style, preventing other owners from paying out of pocket.

Both a Cross Purchase Plan and an Entity Plan offers flexibility such as:

  • Price fixing, formula, or appraisal (most important! Establish fair market value of stock or business at time of agreement.)
  • Pay in cash or installment.
  • Different terms for different events (different prices for retirement, death, disability, etc).

Having a buy-sell agreement is imperative. Preparing one in advance eases negotiations and agreements as no one is sure what the next day will bring.

 

Are you Covered for a Business Interruption?

Business Interruption Insurance - Be AwareRecent heavy rainfall reminds us that not all natural disasters are brought on by hurricanes. Due to heavy and constant rains, flooding has damaged much of Florida’s roadways. Last week, Governor Rick Scott declared a state of emergency for five counties. This included three bay area counties; Hillsborough, Pinellas, and Pasco.

Damage like this creates an immediate need for all for all companies to take a closer look at their insurance coverage. Would you be sufficiently covered in case of a natural disaster? States like Florida and other coastal locations are particularly susceptible to devastating losses from flooding, tropical storms, hurricanes.

“75% of businesses suffering major property damage are out of business within three years because they did not have a contingency plan or the proper financing to see them through the period of recovery.”

What is Business Income Insurance?

When it comes to managing your property risk, business owners should be concerned not only with a loss to their tangible property but also to their income. Natural disasters, fires, and other insured perils often result in an interruption of the operations of a business, which typically lead to a loss of income.  Business income insurance is designed to cover your economic damages when you experience a covered loss that results in a suspension of your business. A suspension of your business can mean either a slow down or a cessation of your business activities. Loss of income is defined in most policies as your net profit as well as continuing expenses, including payroll.  Extra expenses that you incur to recover from a disaster can also be covered.  You might think of it as disability insurance for your business!

What is Included in a Business Interruption Insurance Policy?

  • Compensation for lost income if you are no longer able to operate your business due to a disaster-related damage that is covered by your current property insurance policy.
  • Profits that would have been earned had the disaster not occurred. These numbers are based on previous financial records.
  • Operating expenses that must be paid even if the business is temporarily closed. Examples are utilities, rent, etc.
  • Expenses from a temporary location for you to operate out of while repairs are being made to your permanent location.

Business interruption insurance is one of the most valuable policies a business can have, yet it is often overlooked. Contact us today to learn more about this valuable policy.


Request a Flood Quote