Long-Term Care Benefit Triggers

When LTC policies were introduced, insurers frequently required at least three days of prior hospitalization or skilled nursing home stays before the LTC policy benefits were “triggered.” Although most LTC policies require a physician’s certification that nursing home care is required because of illness, injury, or medical emergency, most polices no longer require hospitalization. 

Benefit Triggers 

Benefit triggers are the conditions that must occur before the insured can start receiving benefits. Although insurance policies vary, the most common “triggers” in long-term care insurance policies are:  

  • Medical Necessity; 
  • Loss of Functional Capacity; and  
  • Cognitive Impairment.  

Usually only one of these triggers need exist in order to qualify for benefit payments. The way benefit triggers are defined in the policy can have an impact on how easily the insured qualifies for benefits. Benefit triggers vary between policies and the same policy might use a different trigger for home care than it does for nursing home care. Be sure to read the policy.

The following is an example of benefit triggers from an actual long term care insurance policy: 

To be eligible for any type of benefit under this policy, your Physician must show that you meet one of the three following benefit qualifiers:  

  • Medical Necessity: You must require covered care due to sickness or injury. The care prescribed must be consistent with accepted medical standards for treating the diagnosed condition and could not have been omitted without adversely affecting your condition. 
  • Loss of Functional Capacity: You need active personal assistance to perform at least two of the six defined Activities of Daily Living.  
  • Cognitive Impairment: You require supervision and direction because of cognitive impairment. 

Most companies look to your inability to perform certain “activities of daily living” (ADLs) to figure out when you can start to receive benefits. The standard definitions of the six types of Activities of Daily Living are: 

  • Eating: The process of putting food into the body from some receptacle, such as a cup or plate; by means of a feeding tube; or intravenously. 
  • Bathing: The act of washing oneself in a bathtub or shower, or by sponge bath. It also includes the individual’s ability to get into and out of a shower or tub. 
  • Dressing: The individual’s ability to put on and take off all items of clothing and any needed braces, fasteners or artificial limbs. 
  • Toileting: Getting to and from the toilet; on and off the toilet; and performing associated personal hygiene. 
  • Transferring: Defined as moving into or out of a chair, bed, or wheelchair. 
  • Continence: The individual’s ability to control his or her bowel or bladder functions; adequately perform needed personal hygiene, including taking care of a catheter or colostomy bag, when unable to control bowel or bladder functions. 

 Pay close attention to what the policy uses as a trigger for paying benefits if the insured develops a cognitive impairment such as Alzheimer’s disease. A person with Alzheimer’s may be physically able to perform activities but is no longer capable of doing them without help. Mental-function tests are commonly substituted as benefit triggers for cognitive impairments. Ask whether you must require someone to perform the activity for you, rather than just stand by and supervise you, in order to trigger benefits. 

Want to know more about LTC benefit triggers? Check out our LTC Fundamental course in our Insurance Continuing Education Course Catalog. 

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Home-Based Business Exposures

The United States has experienced a rapid growth in home-based businesses in the past decade. The Insurance Information Institute reports that there are more than 11 million home-based businesses in the country, a figure that is expected to rise in the coming years. A survey by AAIS, however, found that a majority of these businesses do not have the proper insurance coverage.  

Standard homeowners policies are designed to cover family activities, not business activities. However, they do provide limited coverage for home-based businesses. Homeowners programs also make available a variety of endorsements that can be used to expand, supplement, or replace the form’s basic coverage on home-based businesses.  

The key point here is that a personal lines producer’s clients, especially those who are business owners, often face loss exposures that are not contemplated by standard personal lines insurance coverages, and it behooves the producer to recognize these exposures and take steps to ensure that they have been properly addressed. 

Need for Separate Home-Based Business Coverage and Criteria 

One of the first steps in analyzing potential exposure gaps for home-based businesses is to determine the level of total annual compensation the business generates. For many homeowners policies, if the business activity results in $2,000 or less in total compensation for the 12 months prior to the policy period, the endeavor is not considered a “business” exposure per se and thus not subject to the various business exclusions and limitations of the policy.  

But if its activity results in $2,000 or more in annual compensation (or is expected to in the near future), insurance protection for this home business can be added to the homeowners policy via a “home business insurance coverage” (HO 07 01) or similar endorsement, if the business first meets all of the following criteria. 

  1. The business is operated from the residence premises that is declared on the declarations page and used principally for residential purposes. 
  1. It has no more than three employees and has gross annual receipts of $250,000 or less.  
  1. It is not involved in the food business or the personal care products business (with limited exceptions for businesses such as Avon, Amway, and Mary Kay).  

One other set of criteria applies to this endorsement. It can only be used for the following types of business ownership arrangements. 

  • Sole proprietorships; 
  • Partnerships (provided that the partners are composed only of the named insured and resident relatives); 
  • Closely held (or privately held) corporations, provided that the corporation is composed only of the named insured and resident relatives; or 
  • Joint ventures, provided that the joint venture is composed only of the named insured and resident relatives 

This endorsement provides business property, business income, extra expense, personal liability, and medical payments coverage. For other types of businesses outside these two sets of criteria, the purchase of the appropriate commercial insurance coverage, such as a Business Owners Policy (BOP), is necessary. 

Want to know more about home-based business exposures and the types of available insurance coverage? Check out Homeowners Insurance Made Simple in our Insurance Continuing Education Course Catalog. 

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Life Insurance in Action

insurance continuing educationAs a life insurance agent, you know that people have different characteristics, different situations, and different needs. Consequently, the type and amount of life insurance necessary to meet these different needs will vary, depending on the situation of the individual or family. The products and services the life insurance industry offers meet a need and that is constant and continuous. In the final analysis, people buy life insurance because it minimizes the economic hardships of death and enables them to accomplish through mutuality and cooperation what they could not accomplish alone as individuals.

Let’s look at one example.

Karen Michaels, who is 23 years old, owns a flower shop in a small shop in the Midwest. Her annual net income is $40,000. Karen owns her own condo and has no debts except a $5,000 balance on her car loan. She plans to marry within the next 12 months, but she now has no dependents. Her fiancé is 24 years old and has returned to school to begin a master’s degree in teaching.

What life insurance needs does Karen Michaels have?

The fact that Karen has no dependents would seem to indicate that the only income need she has is for final expenses.

In cases where final expenses would be difficult to estimate, many life insurance agents recommend one-half of annual net income be used. In Karen’s case this is $20,000, which would be needed to cover the cost of medical or hospital expenses and for the expenses of a funeral. However, Karen owes $5,000 on her car loan so her total cash needs are $25,000 ($20,000 plus $5,000 of debt). If she were to die today, how would these debts be paid?

Also, remember that Karen is marrying within the next 12 months. She may be motivated to start a life insurance program that would provide for her future spouse and any children. It’s easier for you to address the need for a life insurance program now than next year after the wedding. The wedding expenses and maybe purchasing a larger home with her new spouse may leave the couple with very little money for insurance.

There is a current need for life insurance that would provide a monthly income to Karen’s spouse for at least ten years should Karen die. Karen could give no better wedding present to her spouse than a guarantee through life insurance that he will be assured of an income for at least ten years, even if Karen’s early death should break up the home. Such independence would help assure her spouse of an adequate income for some time.

As a life insurance agent, keep in mind that there is no substitute for life insurance in guaranteeing a dependable future income. Doing so will help you be enthusiastic about your work thus maintaining your effectiveness in presenting life insurance to your prospects.

Want to know more about life insurance? Check out our life insurance continuing education classes.

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Why Purchase Property and Casualty Insurance?

insurance continuing educationProperty insurance provides protection against most risks to property, such as fire, theft, and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance. When people   finance a home with a mortgage, their lenders most likely will require them to have home insurance coverage to protect the home in case of damage cause by unforeseen circumstances, such as fires or natural disasters.

Just as people can purchase property insurance to protect themselves from financial loss if their property is damaged, they can purchase liability insurance to protect them from financial loss if they become legally liable for injury to another or damage to another’s property. Liability insurance policies cover both legal costs and any legal payouts up to the policy limits for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.

Commercial Property Insurance

Assume your client owns a business. Commercial property insurance protects the things the business needs to run. It can pay to repair or replace business property if it’s stolen, damaged, or destroyed in a fire or natural disaster. Every business is different so the insurance needs of every business are different. Most policies will cover:

  • Office space owned by your business
  • Fixtures
  • Furniture
  • Inventory
  • Supplies
  • Equipment

Commercial Liability Insurance

If you clients have a successful business, they probably think they have great customers. Their customers love their products and their service and would never sue them if something goes wrong, right? Well, assume a customer slips on some tracked-in rainwater and breaks his leg. The doctor’s bills and time off work add up fast, so the customer sues to recoup his losses. Without proper insurance, your clients might find themselves paying hefty legal fees to defend themselves.

Casualty insurance is mainly liability coverage for an individual or organization for negligent acts or omissions. Commercial liability policies protect policyholders against financial responsibility for injury or property damage resulting from a policyholder’s premises, products, services, or other operations.

If your clients have employees, there are types of insurance that their business is legally obligated to obtain, including, in most states, workers’ compensation insurance. Although the payments are usually modest, workers’ compensation insurance covers:

  • medical care from the injury or illness;
  • replacement income;
  • costs for retraining;
  • compensation for any permanent injuries;
  • benefits to survivors of workers who are killed on the job.

An umbrella liability policy can be a cost-effective way to add a layer of protection to existing policies. A single umbrella policy allows a business to increase liability coverage for casualty, workers’ compensation, and auto liability policies without increasing the liability component of each individual policy. Businesses that primarily provide professional services — architects, engineers, accountants and technology service professionals — also should consider professional liability coverage. Professional liability protects the business against lawsuits related to financial loss caused by services provided.

If your clients don’t have property and casualty insurance, they’re leaving themselves and/or their business open to potential loss. Want to know more about property and casualty insurance? Check out property and casualty insurance continuing education classes.

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Who Needs Business Income Coverage?

insurance continuing educationMany business owners wonder whether they need business income coverage. The following scenario shows what can happen if your business property is damaged by wind, a fire, or other peril, and your business is forced to shut down.

Bill owns a restaurant called “Bill’s Burger’s” in commercial space he rents downtown. Bill’s gross income is about $600 per day. He spends an average of $400 per day for rent, utilities, payroll, groceries, and other business necessities. The shop earns a pretax profit of $200 per day, which is acceptable to Bill. Bill has insured his restaurant under a commercial property policy. The policy does not include business income or extra expense coverage.

One day, a tornado damages Bill’s restaurant so severely that the building is now unusable. Bill submits a claim to his property insurer.

A few days later, an insurance adjuster arrives to inspect the damage. The adjuster refers Bill to a contractor who can do the repairs. However, the contractor cannot begin work for three weeks. The repairs will take a week and “Bill’s Burger’s” could be shut down for a month.

Many (but not all) of Bill’s expenses will continue after the disaster even though his business has shut down. Bill must pay his rent and utilities and is incurring about $300 per day in expenses even though the business isn’t generating any revenue. That amounts to $9,000 per month in continuing expenses ($300 per day times 30). Once the business is up and running again, it will need to generate profit for several months to make up for the lost income.

If the tornado had not occurred, the shop would have generated a net profit of $6,000 ($200 per day times 30 days). Because of the storm, Bill’s Burger’s has suffered a business income loss of $15,000 ($6,000 in lost profit plus $9,000 in continuing expenses). Had Bill purchased business income insurance, his $15,000 loss would have been covered.

When the business cannot earn income due to a covered loss, business income coverage replaces the lost earnings. Business income coverage includes expenses to avoid or minimize the suspension of business and to continue operations at the described premises, replacement premises, and temporary locations. Business income coverage may be written with or without extra expense coverage.

Note that some business income forms include a type of deductible called a waiting period. A typical waiting period is 72 hours. A 3-day waiting period would reduce Bill’s business income loss payment by approximately $1,500.

Business income coverage incomes expenses to avoid or minimize the suspension of business and to continue business operations at the:

  • described premises;
  • replacement premises; and
  • temporary locations.

Want to know more about business income insurance? Check out our commercial property insurance continuing education classes.

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