How are insurance companies rated?

There are a ton of different insurance companies out there! Selecting the one is an important financial decision. One important consideration is the financial strength of the insurer. If the company cannot pay future claims or benefits, other considerations become unimportant.

Financial strength ratings represent an analysis of a wide variety of risks that could affect an insurer's long-term survival. Insurance companies can fail or cease to operate due to inadequate financial capabilities, competitive forces, or changing fundamentals in their marketplaces.

You can look to several sources for the financial ratings of insurance companies to see how financially sound they are. The two main institutions that rate insurance companies are A.M. Best (www.ambest.com) and Standard & Poor's (www2.standardandpoors.com)

When would I need an umbrella policy?

If you are ever sued, your standard homeowners or auto policy will provide you with some liability coverage, paying for judgments against you and your attorney's fees, up to a limit set in the policy. However, in our litigious society, you may want to have an extra layer of liability protection. That's what a personal umbrella liability policy provides.

An umbrella policy kicks in when you reach the limit on the underlying liability coverage in a homeowners, renters, condo or auto policy. It will also cover you for things such as libel and slander.

For about $150 to $300 per year you can buy a $1 million personal umbrella liability policy. The next million will cost about $75 and $50 for every million after that.

Because the personal umbrella policy goes into effect after the underlying coverage is exhausted, there are certain limits that usually must be met in order to purchase this coverage. Most insurers will want you to have about $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowners policy before selling you an umbrella liability policy for $1 million of additional coverage.

How can I disaster-proof my business?

Businesses that recover quickly are those that plan in advance. This involves not only purchasing the right insurance, but also developing and maintaining an adequate recovery plan. There are many ways to accomplish this. A few of the most important are:

1. Training employees in fire safety, particularly those responsible for storage areas, housekeeping, maintenance and operations where open flames or flammable substances are used.
2. Modernizing the electrical system since faulty wiring causes a large percentage of nonresidential fires.
3. Keeping up-to-date duplicate records of both computerized and written records. Under federal law, if companies fail to maintain and safeguard accurate business records, the company may still be held liable.
4. Identifying the critical business activities and the resources needed to support them in order to maintain customer service while your business is closed for repairs.
5. Planning for the worst possible scenario. Do research before a disaster strikes by finding alternative facilities, equipment and supplies, and locating qualified contractors to repair your facility.
6. Compiling a list of important phone numbers (including cell phone numbers) and addresses, including local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and claims representatives. The list should also include employees and company officials. Keep copies off the premises in case the disaster is widespread.
7. Review your plan on a regular basis and communicate changes to key employees.

What about identity theft insurance?

According to the FTC, more than 190,000 cases of identity fraud were reported last year! As the number of cases continues to grow you may want to consider identity theft insurance.

Identity theft insurance provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports. Some companies now include it as part of their homeowners insurance policy. Others sell it as either a stand-alone policy or as an endorsement to a homeowners or renters insurance policy.

On average, these policies cost between $25 and $50 for $15,000 to $25,000 worth of coverage. Identity theft insurance provides reimbursement for expenses such as phone bills, lost wages, notary and certified mailing costs and sometimes attorney fees with the prior consent of the insurer.

Tip: Look for this in your homeowners policy. A few companies now offer this coverage standard as part of your homeowners policy.