Chapter 16: Small Business Protection: Risk Management and Insurance (CLASS NOTES)
Non-renewal
A decision by an insurance company not to renew a policy.
Binder
A temporary insurance contract that provides proof of coverage until you receive a permanent policy.
Medical Payments & Personal Injury Protection (PIP)
Both pay limited medical and funeral expenses if you, a family member, or a passenger in your car is injured or killed in a motor vehicle accident. PIP also pays lost-income benefits.
Preferred Provider Organization (PPO)
Hospital, physician, or other provider of health care which an insurer recommends to an insured. A PPO allows insurance companies to negotiate directly with hospitals and physicians for health services at a lower price than would be normally charged.
Subrogation of your Rights
Insurance companies have the right to sue on your behalf (ex: hot water company)
Single Interest Insurance
Insurance coverage for only one of the parties having an insurable interest in that property.
Non-Owners Policy
Insurance coverage that offers liability, uninsured motorist, and medical payments to a named insured who does not own a vehicle.
Risk
Is the very real likelihood that the business may not succeed
Product Liability
Payments for injury or damage that occurs during the use of the business's products
Rental Reimbursement Coverage
Pays a set daily amount for a rental car if your car is being repaired because of damage covered by your auto policy.
Comprehensive Coverage (Physical Damage Other than Collision)
Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.
Collision Coverage
Pays for damage to your car without regard to who caused an accident. The company
PNP
Personal injury protection
Replacement
Real cost
Lapse
Termination of a policy due to non-payment of premiums.
Cancellation
Termination of an insurance policy by the company or insured before the renewal date.
Insurer
The insurance company.
Co-insurance
The percent of each health care bill you must pay out of your own pocket. Non-covered charges and deductibles are in addition to this amount.
Policy Period
The period a policy is in force, from the beginning or effective date to the expiration date.
Policy Owner
The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.
Underwriter
The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.
Beneficiary
The person, persons or entity designated to receive the death benefits from a life insurance policy or annuity contract.
Underwriting
The process an insurance company uses to decide whether to accept or reject an application for a policy.
Insuring Against Risks
Use of insurance can minimize the damage that such risks can cause
Apartment bathtub overflow
only renter's insurance will protect you
Most commonly identified sources of risk:
-Financial risk -Nonpayment of debts -Changes in technology -Injury and illnesses suffered by employees -Injury from accidents incurred by customers -Natural events (storms, floods, fire, earthquakes) -Theft of business property -Misbehavior by employees
Premium Increases:
-Number of checks -Tickets -Moving
Public Adjuster
A person hired by you to settle the claim with the insurance company to settle the claim on your behalf.
Independent Adjuster
A person who charges a fee to the insurance company to adjust the company´s claim.
Agent
A person who sells insurance policies.
Renewal Policy
A policy issued as a renewal of a policy expiring in the same company or agency; not new business.
Rated Policy
A policy issued at a higher premium to cover a person classified as a greater-than-average risk, usually due to impaired health or a dangerous occupation.
Material Misrepresentation
A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.
Rider
A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Same as an "endorsement."
Comprehensive
Acts of God
Premium doesn't change with...
Acts of Gods
Subrogation
Assignment of rights of recovery from insured.
Premium
What you pay monthly; based on your coverage
Using insurance to manage risks:
-Insurance provides a benefit by requiring a relatively small fee compared to amount of loss -The more likely an event is to occur, and the greater the potential amount the insurance company must pay, the higher the price you must pay for coverage
Events Related to Customers and Others:
-Risk from customers -Product liability
3 main events involving personnel:
1) Employee Theft 2) Violation of governmental regulations -EEOC and strategies for compliance 3) Key Employees
Three general types of events that cause business risk:
1) Events related to the property of the business 2) Events related to personnel 3) Events related to customers and others
Strategies for Compliance:
1. Stay small enough so they don't fail to obey 2. Ask for forgiveness instead of permission 3. Ask for checks/assistance to make sure they are doing right 4. Fight for what they believe is right
Peril
A cause of property losses. Usually used in the context of "a peril insured against."
Bodily Injury (BI)
Physical injury to a person.
Health Maintenance Organization (HMO)
Prepaid group health insurance plan which entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine.
Business Risk
Probability that the future state of the business will be less successful than planned
Policy
The contract issued by the insurance company to the insured.
Replacement Cost
The cost associated with replacing property at current market prices.
Liability Limits
The maximum amount your liability policy will pay. Your policy must pay at least $20,000 per person for injuries and deaths, up to $40,000 for all victims of an accident, plus $15,000 for property damage. You can purchase higher liability limits for additional premium.
Whole vs Term
Whole- still get Term- protection against loan (get nothing at end)
Adjuster
A person who investigates and settles insurance claims.
Surplus Lines
Coverage from out-of-state companies not licensed in Texas but legally eligible to sell insurance on a "surplus lines" basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.
Violation Governmental Regulations
EEOC (Events related to personnel) -Regulation in the Workplace -1964: 1)race, 2)color, 3)religion, 4)sex or 5)national origin
Staff Adjuster
Employee of the insurance company´s claim department.
EEOC
Equal Employment Opportunity Commission
Gap Insurance
Insurance that pays the difference between the actual cash value of a vehicle and the amount still to be paid on the loan, Some gap policies may also cover the amount of the deductible.
Liability Insurance
Pays for injuries to the other party and damages to the other vehicle resulting from an accident you caused. It also pays if the accident was caused by someone covered by your policy, including a driver operating your car with your permission.
Property of the business:
Property involves specific forms of risk -Inventory can be stolen, machinery can break -Buildings can be damaged or destroyed -Land may become contaminated -Patents may be infringed upon
Exclusion
Provision in an insurance policy that indicates what is denied coverage.
Loss History
Refers to an insured´s history of losses (claims) with other companies, or the company they are currently with. A company will consider "loss history" when underwriting a new policy or considering a renewal of an existing policy. Companies view "loss history" as an indication of an insured´s propensity for a claim in the future.
Liability Clause
Someone walks on property and gets injured; insurance kicks in.
Depreciation
The act of lowering an item´s value due to use or wear and tear.
Loss
The amount an insurance company pays on a claim.
Premium
The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.
Deductible
The amount the insured must pay in a loss before any payment is due from the company.
Reinstatement
The process by which a life insurance company puts back in force a policy which had lapsed because of nonpayment of renewal premiums.
Actual Cash Value (ACV)
The value of your property, based on the current cost to replace it minus depreciation.
Higher the _____; lower the ______.
deductible; premium (and vice versa)
Have to have liability insurance
for Auto
Entrepreneurs are _____.
risk managers
Some business owners are _____, although most small business owners are ____.
risk seeking; risk averse
UIM
uninsured motorists
Risk from customers primarily arises from:
-Injuries suffered while upon business property -Injury or damage that is caused during the use of the business's products
Contract
In most cases, the term "contract" refers to an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.
Uninsured/Underinsured Motorist (UM/UIM) Coverage
Pays for your injuries and property damage caused by a hit-and-run driver or a motorist without liability insurance. It will also pay when your medical and car repair bills are higher than the other driver´s liability coverage.
Property Damage (PD)
Physical damage to property. Providers - Usually references doctors or those who are providing a medical service.
Managing risk from violations of tax regulations:
Limit your exposure -Keep complete, accurate accounting records: >Control access to accounting system >File all source documents -Establish a relationship with both an accountant and lawyer who are expert in tax issues -Make paying your taxes your first financial priority
Redlining
Refusal by an insurance company to underwrite or to continue to underwrite questionable risks in a given geographical area.
Collision
Replace damage from wreck
Liability
Responsibility to another for one´s negligence.
Whole Life Insurance
Whole life insurance policies are one type of cash value insurance. Whole life policies offer protection through a lifetime - that is, for a person's "whole life." From the day you buy the policy, you pay a scheduled premium,. The scheduled premium may be level or may increase after a fixed time period, but it will not change from the amount(s) shown in the policy schedule. It is important that you look at the policy schedule to be sure you understand what your premium payments will be and that you can afford them over time. This premium is based on your age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but you are likely to end up paying less in premiums when you are older, if you keep the policy for a long time. Part of each premium payment will go to cash value growth, part for the death benefit and part for expenses (such as commissions and administrative costs). There is no need to renew whole life policies. As long as you pay your premium when due, your coverage will continue in force throughout your life.
Actual Cost
depreciation considered for # of years
