Self-funded health care describes a Self insurance arrangement whereby an employer provides health or disability benefits to employees by assuming the direct risk for payment of their claims for benefits. The terms of eligibility and coverage are set forth in a plan document which includes provisions similar to those found in a typical group health insurance policy. Unless exempted, such plans create rights and obligations under the Employee Retirement Income Act of 1974 ("ERISA").
Many employers seek to mitigate the financial risk of self funding claims under the plan by purchasing stop loss insurance from an insurance carrier. These policies typically provide for risk retention limitations both on a specific claim and aggregate claims basis. An important aspect of self funded group health plans lies in the requirement that the employer remain liable for funding of plan claims regardless of the purchase of stop loss insurance. In other words, only the employer has a contractual relationship with plan participants and beneficiaries. The stop loss policy runs solely between the employer and the stop loss carrier and creates no direct liability to those individuals covered under the plan. This feature provides the critical distinction between fully insured plans (subject to State law insurance regulations) and self funded health plans which, under the provisions of Section 514 of ERISA, are exempt from State insurance regulations.
Stop loss policies should be distinguished from "reinsurance" arrangements. Under reinsurance arrangements, one insurance carrier cedes risk to another carrier to lessen its risk. Reinsurance arrangements fall under specific State insurance regulations designed to assure the financial integrity such arrangements.
While some large employers self-administer their self funded group health plan, most find it necessary to contract with a third party for assistance in claims adjudication and payment. Third Party Administrators provide these and other services, such as access to preferred provider networks, prescription drug card programs, utilization review and the stop loss insurance market. Insurance companies offer similar services under what is frequently described as "administration only" contracts. In these arrangements the insurance company provides the typical third party administration services but assume no risk for claims payment.
Monday, February 9, 2009
Self-funded health care
Stranger Originated Life Insurance
Stranger-Originated Life Insurance (STOLI) is a life insurance arrangement, in which speculators, who have no relationship to a person, initiate a insurance policy against their life and fund the premium payments for investment purposes.[1][2] STOLI is best thought of as a "mortality futures" transaction where certain parties have one expectation as to the future value of the article of trade that is the subject of the “futures contract”, while other parties have a different expectation as to the future value of that article of trade. In a STOLI transaction, the article of trade that is the subject of the “futures contract” is the life expectancy or mortality of the insured. While current marketing practices suggest STOLI is an easy way to make money with little if any risk and that all parties will profit, STOLI is actually a complicated transaction involving at least six parties to the transaction and where certain parties will profit and certain parties will lose, just like in any “futures contract”. As such, we will explore herein the various risks of loss and potential for profit from the perspective of each of these parties to the transaction.
STOLI is not a type of life insurance product. It is instead a marketplace term for a transaction that came into being roughly 2004 and which makes use of three legitimate but otherwise separate financial markets, namely: 1) the primary market for new life insurance products issued by an insurance company, 2) the secondary market where inforce life insurance products can be sold for more than the insurance company will pay on termination (i.e., the cash surrender value), and 3) the market of special purpose lenders who finance the payment of life insurance premiums. The basic structure of the transaction is also marketed or referred to as Investor Owned Life Insurance (IOLI), Charity Owned Life Insurance (ChOLI) and Speculator Initiated Life Insurance (SPINLife).
By any name, the transaction (hereafter referred to as STOLI) is defined as an ownership scheme in which a life insurance policy is owned (either initially or ultimately) by an investor group unrelated to the insured, where the insured (or someone with an insurable interest) pays little or nothing for the life insurance, and where someone other than the insured (or someone without an insurable interest) pays for the insurance. Further, in a STOLI transaction, the purpose of the insurance is not for protection against premature death or as a wealth accumulation vehicle, but rather for a profit on the future trading of a life insurance contract.
The basis for such profit expectations revolves around a single factor – the life expectancy of the insured. For instance, like in any “futures” contract, the different parties to the STOLI transaction have different expectations as to the future value of the life insurance death benefits that are article of trade in this “mortality futures” contract. In other words, on one side of the STOLI transaction, certain parties are calculating life expectancy one way, while certain parties on the other side are calculating life expectancy differently. Whichever party calculates life expectancy most accurately will profit, and whichever party miscalculates life expectancy will lose, as we will see below. These various parties to a STOLI transaction are: 1) An insured 2) A life insurance agent/broker (the distributor) 3) An investor group (the viator or life settlement market maker) 4) A special purpose lender 5) The life insurance company 6) The IRS because STOLI policies do not qualify for tax exempt treatment afforded to other forms of life insurance
A typical STOLI transaction begins with a life insurance agent/broker proposing to a prospective insured that he or she “owns” a “wasting asset” in the form of their insurability, and that they can make money “selling” this wasting asset by simply consenting to be insured under a STOLI policy. The insured, who does not need life insurance for traditional reasons such as income replacement, family protection, retirement planning, funding a stock redemption agreement or financing estate taxes, consents to being insured in exchange for the promise of either “free insurance” or some cash payment or both.
Insureds generally pay nothing towards STOLI policy premiums, and in some cases, are actually paid up front cash in exchange for consenting to being underwritten and insured. The investor group serving as market maker for the policy puts up the money to pay premiums (either directly or indirectly through borrowing) and/or to pay the insured this up front cash (again either directly or indirectly through borrowing), all for the exclusive purpose of earning a profit from the collection of STOLI death benefits, which are expected to be greater than the amount they paid for the policy, plus an expected minimum rate of return on the market maker’s STOLI investment.
Regulatory issues make it impractical for the investor group to own the STOLI policy and pay premiums directly during the first two years. As a result, STOLI transactions involve a finance company during this two-year interim period. These special purpose lenders loan funds for the payment of premiums to the insured (or a trust created by the insured) often on a non recourse basis (i.e., the insured can default on repayment and the lender has no recourse for recovering loaned amounts from the insured) at interest rates as high as Prime plus 5% or more (for example, 12% to 14% compound annual loan interest).
The typical proposal for a STOLI transaction suggests that, after these first 2 policy years, the market maker will purchase the policy from the insured for it’s “fair market value”, but the market maker is not generally required to purchase the policy nor is this purchase price guaranteed. While the insured is generally entitled to repay the loan during the first two years and keep the policy, this is unlikely for reasons discussed in “The Insured” section below. Also, while this “fair market value” is presumed to be enough to repay premium loans, pay above market interest, and pay the insured a profit, this “fair market value” is actually a function of the market makers calculation of the life expectancy of the insured at the that time (i.e., 2 years after the date of the initial policy purchase).
“Fair market value” is, by definition, the price at which a willing seller will sell and a willing buyer will buy. The seller of a STOLI policy is the insured (or the trust of the insured), and the buyer is the viator or investor group formed to make a secondary market for life insurance policies. Both are willing sellers/buyers when they expect a profit. The insured seller does not generally perceive a need for the life insurance for traditional reasons, and has no investment in the STOLI contract (beyond the tax cost which may or may not be disclosed in the sales process), so the insured is a “willing seller” at almost any price given there are few if any other exit strategies out of the STOLI transaction.
For instance, an insured has only three (3) options under a STOLI policy, namely: 1) continue the policy by repaying the premium loan and accrued above market interest and start paying above market premiums, or 2) surrender the policy for its cash value after repaying the premium loan and accrued above market interest and take the difference as a loss, or 3) sell the policy to the life settlement market maker for an amount presumably greater than the cash surrender value and hopefully also enough to pay off the premium loan, pay accrued above market interest, pay termination fees (if any), recoup taxes paid and earn the promised profit. Of course, unless the insured decides they need life insurance for traditional reasons, the only practical option is to sell the policy to the life settlement market maker, and thus the STOLI insured will generally be a “willing seller” at any price.
On the other hand, for the market maker buyer to be a willing buyer, the purchase price of the STOLI policy must be low enough such that the investor group still profits when death proceeds are collected some number of years in the future. For example, an investor group seeking a 12% return on its investments over a 10 year holding period could pay up to $370,000 for a $1 million STOLI policy (ignoring taxes for the moment) provided the life expectancy of the insured was 10 years or less. In other words, a $370,000 investment earning 12% for 10 years is equal to $1 million. As such, the maximum price a market making buyer will pay for a STOLI policy can be estimated using simple time value of money calculations using the insured’s life expectancy as the holding period (n), the “hurdle rate” of the investor group (typically in the 12% to 14% range) as the discount rate (i%), the amount of the death benefits expected in the future as the future value (FV), and solving for the present value (PV).
Of course, the less a market maker pays for a given policy and the shorter their holding period until they receive STOLI death proceeds, the greater their profit. It is thus important to remember that life settlement market makers are in business to pay as little as possible when purchasing STOLI holdings in order to maximize investment returns to their investor group. Also, while life insurers generally reserve the right to change their calculation of life expectancy over time by adjusting the pricing of their life insurance policies to reflect actual mortality experience, life settlement market makers “lock in” their calculation of life expectancy at the time they purchase a STOLI policy, and thus risk either reduced profits or even a loss if they miscalculate life expectancy.
For these reasons, and given the current lack of regulation of the life settlement secondary markets, the amounts these investor groups pay for STOLI policies is often far less than their intrinsic “fair market value” of a given policy as calculated above. In other words, after the insured consents to being underwritten and insured under a STOLI policy, the market maker has no obligation and little or no financial incentive to purchase the policy from the insured for an amount that is sufficient to repay premium loans, and pay above market interest, and pay the insured a profit, and are not required to purchase the policy at all. This is not to say that life settlement market makers won’t deliver on the promise to purchase the STOLI policy and pay an amount sufficient to pay a profit to the insured, but is to say that there are financial forces working against the insured receiving such a profit.
One way investor groups may be able to ensure their profit targets while also paying profits promised to the insured is by selling STOLI holdings to a 3rd-Party rather than holding STOLI policies until death benefits are paid. Selling STOLI holdings shortens the holding period of the investor group to something less than the life expectancy, and thereby eliminates the risks associated with different life expectancy calculations. For this reason, certain STOLI investor groups have been seeking to securitize STOLI holdings for sale on Wall Street in the same way real estate developers pooled real estate holdings and sold them as Real Estate Investment Trusts (REITs), and the way mortgage companies bundled mortgage holdings and also sold to the community of public investors.
If STOLI holdings are securitized and sold to the general public, then the number of parties in the STOLI transaction increases to include #7 the investment banking firm that securitizes individual STOLI holdings and sells them to #8 the public market of individual investors. As such, STOLI transactions involves at least six parties, and potentially as many as eight, each involved for the purpose of turning a profit. Each party thus represents a “friction point” whose profit erodes a portion of the economic benefit otherwise available to other parties in the transaction but further down the line.
While there may be transactions other than STOLI that involve eight or more parties/friction points, few involve a financial product that is generally available in the market usually with only two parties seeking a profit from the transaction (i.e., the life insurance company manufacturing the product and the life insurance agent/broker distributing the product, but not the insured who is actually a consumer who is paying for insurance coverage in a traditional life insurance transaction and not seeking a profit and thus not a friction point). In other words, implied in the STOLI transaction is that there is a sufficiently large profit margin in a non STOLI transaction that this “excessive” profit can be divided among an additional four to six parties, and all will still profit, which is simply not possible.
While certain parties to a STOLI transaction do profit without regard to life expectancy (e.g., the life insurance agent/broker and the investment banking firm if STOLI holdings are securitized), certain other parties will profit while certain other parties must lose depending upon the ultimate accuracy of their respective life expectancy calculations. For instance, if life settlement market makers are correct in their calculations of life expectancy, then these investor groups will profit along with those parties on the same side of the STOLI transaction (e.g., the insured, the special purpose lender, and potentially the public investor), and the life insurance company must lose. On the other hand, if the insurance company is correct in its life expectancy calculations, then the insurer will profit and all other parties on the other side must lose.
STOLI is not a type of life insurance product. It is instead a marketplace term for a transaction that came into being roughly 2004 and which makes use of three legitimate but otherwise separate financial markets, namely: 1) the primary market for new life insurance products issued by an insurance company, 2) the secondary market where inforce life insurance products can be sold for more than the insurance company will pay on termination (i.e., the cash surrender value), and 3) the market of special purpose lenders who finance the payment of life insurance premiums. The basic structure of the transaction is also marketed or referred to as Investor Owned Life Insurance (IOLI), Charity Owned Life Insurance (ChOLI) and Speculator Initiated Life Insurance (SPINLife).
By any name, the transaction (hereafter referred to as STOLI) is defined as an ownership scheme in which a life insurance policy is owned (either initially or ultimately) by an investor group unrelated to the insured, where the insured (or someone with an insurable interest) pays little or nothing for the life insurance, and where someone other than the insured (or someone without an insurable interest) pays for the insurance. Further, in a STOLI transaction, the purpose of the insurance is not for protection against premature death or as a wealth accumulation vehicle, but rather for a profit on the future trading of a life insurance contract.
The basis for such profit expectations revolves around a single factor – the life expectancy of the insured. For instance, like in any “futures” contract, the different parties to the STOLI transaction have different expectations as to the future value of the life insurance death benefits that are article of trade in this “mortality futures” contract. In other words, on one side of the STOLI transaction, certain parties are calculating life expectancy one way, while certain parties on the other side are calculating life expectancy differently. Whichever party calculates life expectancy most accurately will profit, and whichever party miscalculates life expectancy will lose, as we will see below. These various parties to a STOLI transaction are: 1) An insured 2) A life insurance agent/broker (the distributor) 3) An investor group (the viator or life settlement market maker) 4) A special purpose lender 5) The life insurance company 6) The IRS because STOLI policies do not qualify for tax exempt treatment afforded to other forms of life insurance
A typical STOLI transaction begins with a life insurance agent/broker proposing to a prospective insured that he or she “owns” a “wasting asset” in the form of their insurability, and that they can make money “selling” this wasting asset by simply consenting to be insured under a STOLI policy. The insured, who does not need life insurance for traditional reasons such as income replacement, family protection, retirement planning, funding a stock redemption agreement or financing estate taxes, consents to being insured in exchange for the promise of either “free insurance” or some cash payment or both.
Insureds generally pay nothing towards STOLI policy premiums, and in some cases, are actually paid up front cash in exchange for consenting to being underwritten and insured. The investor group serving as market maker for the policy puts up the money to pay premiums (either directly or indirectly through borrowing) and/or to pay the insured this up front cash (again either directly or indirectly through borrowing), all for the exclusive purpose of earning a profit from the collection of STOLI death benefits, which are expected to be greater than the amount they paid for the policy, plus an expected minimum rate of return on the market maker’s STOLI investment.
Regulatory issues make it impractical for the investor group to own the STOLI policy and pay premiums directly during the first two years. As a result, STOLI transactions involve a finance company during this two-year interim period. These special purpose lenders loan funds for the payment of premiums to the insured (or a trust created by the insured) often on a non recourse basis (i.e., the insured can default on repayment and the lender has no recourse for recovering loaned amounts from the insured) at interest rates as high as Prime plus 5% or more (for example, 12% to 14% compound annual loan interest).
The typical proposal for a STOLI transaction suggests that, after these first 2 policy years, the market maker will purchase the policy from the insured for it’s “fair market value”, but the market maker is not generally required to purchase the policy nor is this purchase price guaranteed. While the insured is generally entitled to repay the loan during the first two years and keep the policy, this is unlikely for reasons discussed in “The Insured” section below. Also, while this “fair market value” is presumed to be enough to repay premium loans, pay above market interest, and pay the insured a profit, this “fair market value” is actually a function of the market makers calculation of the life expectancy of the insured at the that time (i.e., 2 years after the date of the initial policy purchase).
“Fair market value” is, by definition, the price at which a willing seller will sell and a willing buyer will buy. The seller of a STOLI policy is the insured (or the trust of the insured), and the buyer is the viator or investor group formed to make a secondary market for life insurance policies. Both are willing sellers/buyers when they expect a profit. The insured seller does not generally perceive a need for the life insurance for traditional reasons, and has no investment in the STOLI contract (beyond the tax cost which may or may not be disclosed in the sales process), so the insured is a “willing seller” at almost any price given there are few if any other exit strategies out of the STOLI transaction.
For instance, an insured has only three (3) options under a STOLI policy, namely: 1) continue the policy by repaying the premium loan and accrued above market interest and start paying above market premiums, or 2) surrender the policy for its cash value after repaying the premium loan and accrued above market interest and take the difference as a loss, or 3) sell the policy to the life settlement market maker for an amount presumably greater than the cash surrender value and hopefully also enough to pay off the premium loan, pay accrued above market interest, pay termination fees (if any), recoup taxes paid and earn the promised profit. Of course, unless the insured decides they need life insurance for traditional reasons, the only practical option is to sell the policy to the life settlement market maker, and thus the STOLI insured will generally be a “willing seller” at any price.
On the other hand, for the market maker buyer to be a willing buyer, the purchase price of the STOLI policy must be low enough such that the investor group still profits when death proceeds are collected some number of years in the future. For example, an investor group seeking a 12% return on its investments over a 10 year holding period could pay up to $370,000 for a $1 million STOLI policy (ignoring taxes for the moment) provided the life expectancy of the insured was 10 years or less. In other words, a $370,000 investment earning 12% for 10 years is equal to $1 million. As such, the maximum price a market making buyer will pay for a STOLI policy can be estimated using simple time value of money calculations using the insured’s life expectancy as the holding period (n), the “hurdle rate” of the investor group (typically in the 12% to 14% range) as the discount rate (i%), the amount of the death benefits expected in the future as the future value (FV), and solving for the present value (PV).
Of course, the less a market maker pays for a given policy and the shorter their holding period until they receive STOLI death proceeds, the greater their profit. It is thus important to remember that life settlement market makers are in business to pay as little as possible when purchasing STOLI holdings in order to maximize investment returns to their investor group. Also, while life insurers generally reserve the right to change their calculation of life expectancy over time by adjusting the pricing of their life insurance policies to reflect actual mortality experience, life settlement market makers “lock in” their calculation of life expectancy at the time they purchase a STOLI policy, and thus risk either reduced profits or even a loss if they miscalculate life expectancy.
For these reasons, and given the current lack of regulation of the life settlement secondary markets, the amounts these investor groups pay for STOLI policies is often far less than their intrinsic “fair market value” of a given policy as calculated above. In other words, after the insured consents to being underwritten and insured under a STOLI policy, the market maker has no obligation and little or no financial incentive to purchase the policy from the insured for an amount that is sufficient to repay premium loans, and pay above market interest, and pay the insured a profit, and are not required to purchase the policy at all. This is not to say that life settlement market makers won’t deliver on the promise to purchase the STOLI policy and pay an amount sufficient to pay a profit to the insured, but is to say that there are financial forces working against the insured receiving such a profit.
One way investor groups may be able to ensure their profit targets while also paying profits promised to the insured is by selling STOLI holdings to a 3rd-Party rather than holding STOLI policies until death benefits are paid. Selling STOLI holdings shortens the holding period of the investor group to something less than the life expectancy, and thereby eliminates the risks associated with different life expectancy calculations. For this reason, certain STOLI investor groups have been seeking to securitize STOLI holdings for sale on Wall Street in the same way real estate developers pooled real estate holdings and sold them as Real Estate Investment Trusts (REITs), and the way mortgage companies bundled mortgage holdings and also sold to the community of public investors.
If STOLI holdings are securitized and sold to the general public, then the number of parties in the STOLI transaction increases to include #7 the investment banking firm that securitizes individual STOLI holdings and sells them to #8 the public market of individual investors. As such, STOLI transactions involves at least six parties, and potentially as many as eight, each involved for the purpose of turning a profit. Each party thus represents a “friction point” whose profit erodes a portion of the economic benefit otherwise available to other parties in the transaction but further down the line.
While there may be transactions other than STOLI that involve eight or more parties/friction points, few involve a financial product that is generally available in the market usually with only two parties seeking a profit from the transaction (i.e., the life insurance company manufacturing the product and the life insurance agent/broker distributing the product, but not the insured who is actually a consumer who is paying for insurance coverage in a traditional life insurance transaction and not seeking a profit and thus not a friction point). In other words, implied in the STOLI transaction is that there is a sufficiently large profit margin in a non STOLI transaction that this “excessive” profit can be divided among an additional four to six parties, and all will still profit, which is simply not possible.
While certain parties to a STOLI transaction do profit without regard to life expectancy (e.g., the life insurance agent/broker and the investment banking firm if STOLI holdings are securitized), certain other parties will profit while certain other parties must lose depending upon the ultimate accuracy of their respective life expectancy calculations. For instance, if life settlement market makers are correct in their calculations of life expectancy, then these investor groups will profit along with those parties on the same side of the STOLI transaction (e.g., the insured, the special purpose lender, and potentially the public investor), and the life insurance company must lose. On the other hand, if the insurance company is correct in its life expectancy calculations, then the insurer will profit and all other parties on the other side must lose.
Sunday, February 1, 2009
Title insurance in the United States
Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.[1] Title insurance was created in the United States by William Penn and the vast majority of title insurance policies are written on land within the U.S.
Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.
Title insurance is available in many other countries, such as Canada, Australia, United Kingdom, Northern Ireland, Mexico, New Zealand, China, Korea and throughout Europe. However, while a substantial number of properties located in these countries are insured by US title insurers, they do not constitute a significant share of the real estate transactions in those countries. They also do not constitute a large share of US title insurers' revenues. In many cases these are properties to be used for commercial purposes by US companies doing business abroad, or properties financed by US lenders. The US companies involved buy title insurance to obtain the security of a US insurer backing up the evidence of title that they receive from the other country's land registration system, and payment of legal defense costs if the title is challenged.
Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.
Title insurance is available in many other countries, such as Canada, Australia, United Kingdom, Northern Ireland, Mexico, New Zealand, China, Korea and throughout Europe. However, while a substantial number of properties located in these countries are insured by US title insurers, they do not constitute a significant share of the real estate transactions in those countries. They also do not constitute a large share of US title insurers' revenues. In many cases these are properties to be used for commercial purposes by US companies doing business abroad, or properties financed by US lenders. The US companies involved buy title insurance to obtain the security of a US insurer backing up the evidence of title that they receive from the other country's land registration system, and payment of legal defense costs if the title is challenged.
Trade Credit Insurance
Trade Credit Insurance or Credit Insurance is an insurance policy and a risk management product offered by private insurance companies and governmental Export Credit Agencies to business entities wishing to protect their balance sheet asset, accounts receivable, from loss due to credit risks such as protracted default, insolvency, bankruptcy, etc. This insurance product, commonly referred to as credit insurance, is a type of Property & casualty insurance and should not be confused with such products as credit life or credit disability insurance, which the insured obtains to protect against the risk of loss of income needed to pay debts. Trade Credit Insurance can include a component of political risk insurance which is offered by the same insurers to insure the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation, etc.
This points to the major role Trade Credit Insurance plays in facilitating International trade. Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building. This asset may then be viewed as Collateral (finance) by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product. Trade Credit Insurance is, therefore, a trade finance tool.
This points to the major role Trade Credit Insurance plays in facilitating International trade. Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building. This asset may then be viewed as Collateral (finance) by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product. Trade Credit Insurance is, therefore, a trade finance tool.
Terrorism insurance
Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.
It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in Casualty and Property insurance, or else require endorsments to provide coverage.
On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism[1].
The United States insurance market offers coverage to the majority of large companies which ask for it in their polices[2]. The price of the policy depends on where the clients are residing and how much limit they buy.
It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in Casualty and Property insurance, or else require endorsments to provide coverage.
On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism[1].
The United States insurance market offers coverage to the majority of large companies which ask for it in their polices[2]. The price of the policy depends on where the clients are residing and how much limit they buy.
Variable universal life insurance
Variable Universal Life Insurance (often shortened to VUL) is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The 'variable' component in the name refers to this ability to invest in separate accounts whose values vary--they vary because they are invested in stock and/or bond markets. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy.
Variable universal life is a type of permanent life insurance, because the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. With most if not all VUL's, unlike whole life, there is no endowment age (which for whole life is typically 100). This is yet another key advantage of VUL over Whole Life. With a typical whole life policy, the death benefit is limited to the face amount specified in the policy, and at endowment age, the face amount is all that is paid out. Thus with either death or endowment, the insurance company keeps any cash value built up over the years. With a VUL policy, the death benefit is the face amount plus the build up of any cash value that occurs (beyond any amount being used to fund the current cost of insurance.)
If good choices for investments are made in the separate accounts, a much higher rate-of-return can occur than the low fixed rates-of-return typical for whole life. The combination over the years of no endowment age, continually increasing death benefit and high rate-of-return in the separate accounts of a VUL policy could typically result in value to the owner or beneficiary which can be many times that of a whole life policy with the same amounts of money paid in as premiums.
Variable universal life is a type of permanent life insurance, because the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. With most if not all VUL's, unlike whole life, there is no endowment age (which for whole life is typically 100). This is yet another key advantage of VUL over Whole Life. With a typical whole life policy, the death benefit is limited to the face amount specified in the policy, and at endowment age, the face amount is all that is paid out. Thus with either death or endowment, the insurance company keeps any cash value built up over the years. With a VUL policy, the death benefit is the face amount plus the build up of any cash value that occurs (beyond any amount being used to fund the current cost of insurance.)
If good choices for investments are made in the separate accounts, a much higher rate-of-return can occur than the low fixed rates-of-return typical for whole life. The combination over the years of no endowment age, continually increasing death benefit and high rate-of-return in the separate accounts of a VUL policy could typically result in value to the owner or beneficiary which can be many times that of a whole life policy with the same amounts of money paid in as premiums.
Universal life insurance
Universal Life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.
Whole life insurance
Whole Life Insurance, or Whole of Life Assurance (in the Commonwealth), is a life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy.
Workers' compensation
Workers' compensation (colloquially known as workers' comp in North America or compo in Australia) is a form of insurance that provides compensation medical care for employees who are injured in the course of employment, in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The tradeoff between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain." While plans differ between jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance). General damages for pain and suffering, and punitive damages for employer negligence, are generally not available in worker compensation plans.
Employees' compensation laws are usually a feature of highly developed industrial societies, implemented after long and hard-fought struggles by trade unions. Supporters of such programs believe they improve working conditions and provide an economic safety net for employees. Conversely, these programs are often criticised for removing or restricting workers' common-law rights (such as suit in tort for negligence) in order to reduce governments' or insurance companies' financial liability. These laws were first enacted in Europe and Oceania, with the United States following shortly thereafter.
Employees' compensation laws are usually a feature of highly developed industrial societies, implemented after long and hard-fought struggles by trade unions. Supporters of such programs believe they improve working conditions and provide an economic safety net for employees. Conversely, these programs are often criticised for removing or restricting workers' common-law rights (such as suit in tort for negligence) in order to reduce governments' or insurance companies' financial liability. These laws were first enacted in Europe and Oceania, with the United States following shortly thereafter.
Vision insurance
Vision insurance is a form of insurance that provides coverage for the services rendered by eye care professionals such as ophthalmologists and optometrists. There are many vision insurance companies. The typical vision insurance plan provides yearly coverage for eye examinations and partial or full coverage eyeglasses, sunglasses, and contact lenses, with or without copays, depending on the plan chosen.
List of Vision Insurance companies
Davis Vision
Eyemed
Cole Managed Vision
VSP
AFLAC
Vision Benefits of America
List of Vision Insurance companies
Davis Vision
Eyemed
Cole Managed Vision
VSP
AFLAC
Vision Benefits of America
Wage insurance
Wage insurance is a form of proposed insurance that would provide workers with compensation if they are forced to move to a job with a lower salary. The idea is usually proposed as a response to outsourcing and the effects of globalization, although it could equally be proposed as a response to job displacement due to increasingly productive technology (e.g. factories, or computers). Economic consensus generally holds that in both cases -- the integration of the global economy through free trade, on one hand, and greater technological efficiencies, on the other -- the changes will have a net benefit across the world. However, economic theory also indicates that, while people over the aggregate will be better off, many individuals will not be able to keep their current job at their current wages. Those individuals may be able to retrain and move to more highly paid wages, and the reduced cost of goods (which is likely to result from either case under consideration) may offset at least some of the wage loss. These compensating effects are likely to take several years to come about, however, and some people might never be fully compensated by normal market mechanisms. Wage insurance would offer compensation in these situations.
Zombie fund
A Zombie Fund (a.k.a. Closed Fund) is a with-profits life insurance fund, which is closed to new business. So it is running off its investment portfolio, keeping the capital invested while for the last members to die, but not underwriting new policies.
Some critics have argued that investment performance falls once a fund closes. Zombie Funds can attract negative coverage, as in the case of Resolution plc.
For further information on zombie funds please see here: http://www.investmentcheck.co.uk/zombie.html
Some critics have argued that investment performance falls once a fund closes. Zombie Funds can attract negative coverage, as in the case of Resolution plc.
For further information on zombie funds please see here: http://www.investmentcheck.co.uk/zombie.html
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