Surviving Bumpy Times

February 1, 2001

Entrepreneurs like you are vulnerable to major losses--and not necessarily because of bad business decisions. A loss may result from having too little insurance.

That’s the conclusion of the Independent Insurance Agents of America, which conducted a study of in-home businesses and found that 60 percent were under insured.

Regardless of where you hang your shingle, at home or in a broker’s office, having the right insurance is critical to keeping your financial balance.

Selecting insurance on the basis of your age or stage in life is a tidy approach, but financial planners say it’s more effective to factor in your personal situation and risk factors. “Each situation has to fit the dynamics at hand,” says Alan Nadolna, president of the Associates Group, a Northbrook, Ill.-based financial planning firm.

Here are some of the policies you should look at to be sure your life, property, business, and health are well insured (also see “Your insurance partners,” for information on programs designed to protect real estate professionals).

Disability--Planners say disability insurance, which replaces your income if you’re injured and can’t work, is one of the most critical and overlooked products.

It’s not cheap, but there are ways to save. For example, set up your business as a C corporation and you can deduct premiums. Another strategy: Extend the elimination period (the time before the policy starts paying): “If you elect a 180-day period versus a 30-day period, you could save 40 percent in premium dollars,” estimates David R. Bergmann, a certified financial planner with the David R. Bergmann Group of Marina Del Rey, Calif.

Major components to consider in a disability policy are

  • How long will benefits be paid—for a set number of years, until retirement, or for life?
  • What constitutes a disability--being unable to work at your chosen profession or being unable to work at all?
  • Is the policy a non-cancelable guaranteed renewable contract, which assures a locked-in coverage rate, or is it guaranteed renewable with a possible premium rise?

Long-term care--Often, people don’t consider long-term care issues because either they don’t want to face the idea of being incapacitated or they assume their nest egg will cover it.

Nadolna recommends long-term care coverage.

“Why save all your life and find yourself in poverty, rather than spend a portion of your income now to protect against that loss?”

Some caveats: Buy a policy when you’re healthy. Some planners advocate buying insurance when you’re young to lock in a rate. In addition, they point out a person of any age can be injured in a car accident and require long-term care. Others say you can wait until your early 60s to start shopping.

“You need to assess what risk you’re comfortable with and what you can afford, and balance those issues,” says Bergmann. “No one can say this is what to do.”

Here are some issues to consider:

  • What kind of facility and care does the policy cover--nursing home, in-home, adult daycare, assisted living facility?
  • What is the waiting period before coverage begins?
  • Is the policy inflation-protected? If daily care costs $100 today and $200 in 10 years, will it pay you today’s rate or tomorrow’s?
  • What is the triggering event? How ill must you be to get benefits? If you leave a nursing home and have to return, does a new elimination period kick in?

Randolph Shine, co-owner of Shine Financial, Deerfield Beach, Fla., had real estate clients—a couple in their late fifties--who dropped $48,500 in one shot to buy a long-term care policy. “They bought a top-of-the-line policy with pretax dollars and they’re both covered for life,” he says.

Health insurance--Choosing a health plan is one of the most complex insurance decisions. Among the issues to consider are monthly costs, deductibles, whether to cover only catastrophic medical expenses, what hospitals and doctors are part of the plan, the cost of doctor visits, and whether the policy covers specialist services.

One way to save is to establish a medical savings account. If you qualify, you can set aside pre-tax dollars to pay out-of-pocket medical expenses and long-term care premiums.

Life insurance--The primary motivation for buying life insurance is to minimize the financial impact of your death on your family. Although it’s popular to go for lottery-sized policies, it’s not always a wise way to invest your money. “Look at what the financial impact would be, quantify the need, and evaluate how to use inexpensive term insurance,” Nadolna advises.

A money-saving alternative is a policy that equates the loss of a person to a monthly income, Nadolna says. For instance, you can buy a policy that pays your beneficiaries $5,000 monthly for a specific number of years. It costs less, since the company pays out benefits over many years rather than in a lump sum, he says.

Car, homeowners, and liability insurance--If you work from your house, it’s likely your homeowner’s insurance doesn’t cover your business equipment or the increased liability of having clients at your home. Call your insurance carrier about getting a rider on your homeowner’s policy or about buying business insurance. In addition, if you to drive customers around, be sure your auto policy covers it. Another option: an umbrella liability policy to cover liability not taken care of by your car or homeowner’s policy.

Your insurance partners

NAR’s REALTOR® VIPSM Alliance Program can help you find the right insurance plans for your needs.

USA Services Group designs, markets, and administers a full range of individual, small group, dental, and prescription programs. It has relationships with a number of insurance companies to give you the most competitive plans available. In addition, USA Services Group can generate individual bills or multiple employee (list) billings with any number of plans.

Life and disability
Various life insurance policies are available with coverage in $10,000 increments at competitive rates and with various plan options. Disability insurance products are also available through an NAR third-party administrator.

Long-term care
MedAmerica Insurance Co. finances and delivers long-term care insurance for NAR members, as well as their spouses, parents, parents-in-law, grandparents, grandparents-in-law, and children. There are many options to choose from, including the 10-year-paid-in-full option, home-care benefits, the once-in-a-lifetime waiting period, the spousal discount, and guaranteed renewability.

Auto & homeowners
Liberty Mutual can insure you against theft and costly accidents. NAR members get discounted rates and payment options,including automatic checking account deductions. Liberty Mutual guarantees a rate for 12 months with no monthly service or finance charges.

Errors and omissions and Secure-A-Lease
Geo. F. Brown and SAFECO offer two products--errors and omissions insurance and Secure-A-Lease.

The companies’ E&O policies provide coverage for practitioners in residential, commercial, property management and leasing, appraisal, counseling, auctioneering, mortgage brokerage, business brokerage, and title services. Some of the features include claim/aggregate limits between $100,000 and $2,000,000, a consent-to-settle clause, and optional full-limit lockbox coverage.

With GFB’s newest product, Secure-A-Lease, property managers can simplify their security deposit program and create a new profit center for their companies. It protects both the lessor and the property manager, and it’s easily administered.

Legal Services
Pre-Paid Legal Services Inc. offers comprehensive legal services for personal and business needs.

Elyse Umlauf-Garneau is a Chicago-based freelance writer and former senior editor with REALTOR® Magazine.

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.