What To Do With ‘Safe Money’

The first rule of investing is always ‘safety,’ but with inflation hovering around 2 to 3 percent, bank-guaranteed products like CDs and savings accounts are actually losing money net of inflation.

So where can investors find a safe harbor in a storm without taking on too much market risk? Here are some important ideas:

1) Annuities

Annuities come with the advantage of a contractual guarantee. This is what sets annuities apart from investment products: The insurance company issuing the contract takes on some or all of the market risk. If the stock market or bond market crashes, the annuity company is still obligated to fulfill its promises to the annuity holder. No mutual fund, stock or bond can offer that guarantee in writing. This is what sets annuities apart.

Where safety of capital is absolutely required, you may wish to consider fixed annuities which are designed to provide a guaranteed annual rate of return, regardless of market events.

Fixed annuities are appropriate for those who want a guaranteed rate of return on money they won’t need for several years. If you need to guarantee a set minimum amount of income for life or for the joint lifetimes of yourself and another loved one, and you will need the income to begin starting immediately, you may consider a lifetime income annuity. Both of them are guaranteed to deliver as promised, regardless of what happens to the economy or the stock market as long as the insurance company is solvent.

Annuity assets grow tax deferred, as long as you leave them in the annuity. An early withdrawal penalty of 10 percent may apply if you are under age 59½.

For maximum safety, work with your insurance professional to select annuities from carriers with very high ratings for financial stability and liquidity.

2) Bonds

Bonds are simply IOUs from a corporate or government borrower to a lender. While some bonds, usually called “high yield” bonds, come with substantial market risk, many of them come from very solid, established corporations with decades of consistent earnings that are more than enough to cover interest payments, and pay back the loan when the bond matures.

The safest bonds from this perspective are U.S. Treasury bonds which have generally unquestioned credit quality. Because the U.S. Treasury has both the power to tax and to print money to cover obligations, U.S. Treasury bonds are generally considered the gold standard. Bond prices may fluctuate over time – the longer the bond’s duration, the more you can expect the bond price to fluctuate. Scheduled interest payments and the return of capital are assured.

Municipal bonds – those issued by states and cities – feature interest income free of federal taxation. These are popular among individuals in higher tax brackets.

Corporate bonds – Those interested in safety may consider investment-grade bonds. There is an element of risk here so planners look for bonds from companies with long records of consistent earnings sufficient to pay interest and return the face amount of the bond at maturity. In the worst case event  – the bankruptcy of the company – planners look for companies that have solid price-to-book ratios, so that even if the company had to sell all its assets tomorrow, they would be able to raise enough cash to make bondholders whole.

3) Bond mutual funds

These are just mutual funds with many bonds in them. Safety-conscious investors may consider a short-term bond fund for price stability. With mutual funds, there is no single maturity date on which you can expect to receive a specific lump sum. If you need that feature, consider buying a bond.

If not, your advisor can help you construct a diversified portfolio of bonds and bond funds to help you meet your financial needs while keeping risk down.

4) Money markets

Money markets are essentially mutual funds that focus on very safe, liquid, short-term investments, intended to maintain a stable net asset value of $1 per share, no matter what happens to the markets. Money market portfolios typically consist of short-term treasuries, high quality, short-term corporate debt and commercial paper. Unlike CDs, money market funds typically do not come with FDIC insurance but they have historically been very safe places to park cash.

The right safe money investment or combination of investments for you depends on your own individual situation, including your risk tolerance, time horizon and your need for income. To get started constructing the ‘safe money’ portion of your portfolio, contact your agent today.

Home Vacation Rentals and Insurance Gaps

Airbnb estimated that over 1 million people would celebrate the beginning of 2016 in an Airbnb rental. Many people are using the popular option of renting out a room in a home or renting out an entire apartment directly from an owner during a getaway. However, gaps in insurance policies can spell disaster for guests and homeowners who use these sites. While sites such as Airbnb provide generous host liability insurance limits, they do not provide coverage for many of the losses suffered by guests. However, there are exclusions for what is covered for homeowners. In addition to this, many personal home insurance policies of the owners who rent their spaces out do not cover guests’ personal property losses.

Both homeowners and traveling renters should educate themselves about insurance issues related to home sharing and what options are available. Some options are available from sites such as Airbnb. Since the typical property and casualty insurance policies do not offer ample coverage in the event of incidents leading to property damage or injuries in these situations, experts recommend following these important rules:

1. Review host protection insurance. When signing up through a third-party site to offer a vacation rental, be sure to read the host liability insurance specifications. Some sites offer generous amounts up to $1 million. However, it is important to be fully aware of the exclusions.

2. Home-sharing hosts are not clearly defined in insurance policies. Home sharing is still a gray area in insurance policies. How often the home is rented, how many people are staying in the home and whether the homeowner is home during the guest’s stay are just a few aspects that can affect coverage and exclusions. Discuss any plans with an agent before accepting guests.

3. Keep the insurer updated. If something happens when a renter is visiting and the insurer does not know that the home is being rented out, there could be major issues with coverage. Insurers want and need to know about the home, who is living in it, or how it is being used changes.

4. Insurers may deny coverage by citing business use of a home. When a home is rented out frequently, it could be considered a business. A home insurance policy does not cover regular business activities taking place in the home. Talk to an agent to discuss renting basics, renting frequency and what will happen if a guest is injured based on a current policy.

5. How much of the home is used can affect coverage. If one room is rented out occasionally while the owner is at home, this may be acceptable. However, people who rent their entire homes out frequently may be classified as running a business and may not be covered.

6. An endorsement may be needed. If the insurer will not cover a home based on the frequency of renting, ask if alternative options or endorsements are available.

7. Consider a landlord policy. When a home is rented out frequently, it may be wise to purchase a separate landlord policy. This will cover liability and legal fees. It also covers lost income due to structure damage.

8. Guests should read their insurance policies and user agreements. Guests who choose to use sites such as Airbnb should read through the fine print carefully. The sites often include clauses that give the company the right to file claims with the guest’s insurer if he or she causes damage to the rental property. In addition to this, it is important to read a personal insurance policy. Be aware of policy limits and what is covered and excluded. If any items are damaged or stolen during a stay, they are typically covered by a home or renter’s insurance policy.

This issue is another example of why it is important to read the fine print on everything. Knowing what to expect ahead of time and how to handle any unforeseen losses is the best way to enjoy a vacation and keep peace of mind. For more information, discuss concerns with an agent.

Protect Your Officers with Drive Other Car Coverage

Linda is a junior partner in a law firm and drives a car that the firm owns and insures. She is unmarried and her children are not old enough to drive, so she does not carry a personal auto insurance policy. The firm’s auto insurance covers her as a partner and she doesn’t own another car, so she sees no need to have her own policy. Most of the time, this is not a problem. However, spring break comes and she takes her kids to DisneyWorld. She rents a car at the Orlando airport and never gives a thought to whether her firm’s insurance will cover her if she has an accident with the rental. In this case, a phone conversation with the firm’s insurance agent would have been a great idea.

While driving back from the Magic Kingdom one night, Linda accidentally rear-ends a new Lexus. The damage to the other car is extensive; Linda looks to her firm’s auto liability coverage for the cost of repairing it. The ISO Business Auto Policy covers the person or organization shown in the policy declarations (the information page at the beginning.) In this case, the name shown in the policy Declarations is the name of Linda’s firm. The policy goes on to say that, for liability insurance, the firm is an insured and so is anyone else using, with the firm’s permission, a covered auto the firm owns, hires or borrows, with some exceptions. Unfortunately for Linda, the firm didn’t rent the car; she did. She rented the car in her name. Consequently, the firm’s insurance will not cover her liability for this accident. She will be forced to pay for it out of her own funds.

However, there are a couple of policy changes that the firm can buy that would solve Linda’s problem. The first is an endorsement called Drive Other Car Coverage-Broadened Coverage for Named Individuals. The insurance company will require the insured to list the names of one or more individuals on the endorsement. The change extends several of the policy’s coverages so that they apply to the listed individuals and their resident spouses. This endorsement comes with some significant limitations:

  • It extends to the listed individuals coverages that the policy already provides; it does not add coverages not provided. If the firm’s policy does not provide collision coverage on any its vehicles, Linda will not have collision coverage on a car she rents.
  • It covers the named individual’s spouse only while a resident of the same household. If Linda is married to Jim, Jim automatically has coverage for a car he rents in his name. If they separate, however, Jim loses that automatic coverage because he no longer resides in the same household as Linda.
  • The only family member it automatically covers is the resident spouse. It will not cover any other family members in the household unless the endorsement specifically lists their names.

An alternative to this endorsement is to list individuals’ names in the policy declarations along with the firm’s name and attach an endorsement called Individual Named Insured. It covers the individual listed in the declarations and automatically covers the person’s resident spouse and family members. It also covers these individuals should they injure another of the firm’s employees.

These policy changes affect several coverages, including liability, uninsured motorist, medical payments, and physical damage. An organization should consult with a professional insurance agent to discuss the endorsements’ details and identify the one that will best insure the concerned individuals. With the right coverage in place, Linda can enjoy her vacation without having to worry about who will pay for the fender-bender.

Employers are Rethinking Benefits to Get More for their Money

Although more than 75 percent of employers focus mostly on their health insurance strategies for avoiding the ACA’s 2018 excise tax, more employers are also improving their employees’ interest levels by offering programs to improve their health. Many are also offering more preventative services as top priorities. These were the findings of a Midwest Business Group on Health survey conducted for the 2016-2017 coverage year. The non-profit company examined 119 employers for the survey.

The survey conductors said that employers are now implementing several innovative strategies to manage health plan offerings. They are also taking steps to encourage workers to be more proactive about managing their health. As the perspective that health benefits are an investment in human capital increases among business owners, more of them are looking for ways to make more effective approaches for facing the largest expense they have aside from payroll.

Survey Findings
About 60 percent of employers said that managing specialty drugs was a priority during the past several years, and another 60 percent said that creating a workplace health culture was important. When asked about the excise tax of 2018, about 20 percent of employers expected to reach it at that time. However, nearly 50 percent reported a projection of reaching it beyond 2019.

Some of the top strategies cited by employers to avoid the future excise tax were offering plans with higher deductibles, increasing access to wellness programs, expanding employee cost share and implementing incentives for employees’ use of wellness programs. Many employers also reported their plans to reduce benefits and optimize networks for top providers.

On the topic of offering workers access to private exchanges, the majority of employers did not report plans to offer this to their workers. However, the amount of employers planning to avoid private exchange access for 2016 decreased in projected plans for 2017 and 2018. While the 2016 reporting was nearly 80 percent, projected plans fell to about 30 percent of employers refusing to offer private exchange access in 2018.

Nearly 55 percent of employers reported their plans to offer high-deductible health coverage. However, they still held faith that PPOs and HMOs would become relevant because of how many workers were in low-salary tiers. About 50 percent of employers that were self-insured cited incentives based on outcomes as a priority. Nearly 80 percent of employers were not sure if increasing employees’ cost share would be higher during the next few years. While a few reported plans to move to 50/50 coverage eventually, most employers planned to stay at the 70/30 coverage rate. More than 45 percent of employers also said that telemedicine would be a priority for them in the near future.

About 60 percent of employers planned to offer benefits in 2025, and the remaining percentage of employers did not yet know what they would do. Government mandates, peer company actions and pressure from the labor market will all influence these decisions.

More than 80 percent of employers planned to cover married same-sex couples in 2016. About 55 percent planned to cover domestic partnerships, and this drops to about 40 percent in 2017. This is likely due to the Supreme Court ruling on same-sex marriages, which will make domestic partnerships less common.

While only about 35 percent of employers cover workplace violence related to intimate partners, more than 95 percent cover general workplace violence that does not include incidents by intimate partners. More than 55 percent of employers plan to work with excellence centers by 2017, and less than 50 percent plan to offer their workers high-performance provider networks. To learn more about this survey and insurance options in the workplace, discuss concerns with an agent.


Three Cases Demonstrate Why Your Business Needs to Protect Against Employee Lawsuits

Many business owners sincerely try to treat their employees with respect and dignity. They expect employee lawsuits for poor treatment to happen to other businesses, not to them. Unfortunately, that is not always the case. Any business can find itself on the receiving end of an employment practices lawsuit.

A California hospital thought it was dispensing justice equally when it fired two employees over an allegation of sexual harassment. A nurse who had worked there for 20 years with an excellent service record complained about a new supervisor. The supervisor allegedly made inappropriate comments, physical contact and lewd displays to him. He maintained that he never consented to such conduct. The supervisor claimed the opposite, that the nurse did consent and even participated in the interactions.

Following an investigation, the hospital fired both men for “unprofessional conduct.” The nurse sued the hospital for wrongful termination of employment. A jury awarded him $238,328 plus interest and court costs. The hospital appealed the verdict. While finding that the trial judge gave bad instructions to the jury, the appellate court found that substantial evidence supported the judgment.

An employee of a water authority in upstate New York began to experience harassing behavior after he got engaged to a woman of another race. His supervisor and several co-workers allegedly cursed him, vandalized his property, threatened him, and made offensive comments that could be construed as racist. He complained to his superiors but did not file a formal complaint with the authority’s human resources department.

At the same time, the authority was accumulating a file documenting instances of poor performance and misconduct by the employee. Ultimately, he was fired. He sued the water authority and 10 individuals who worked there, alleging physical assault and battery, unlawful discrimination, hostile work environment, disparate treatment, retaliation, deprivation of his constitutional rights, and intentional infliction of emotional distress.

After dismissing the claims against five of the individuals, the jury awarded the employee $305,000 in back pay and $5,000 in punitive damages from each of the five remaining defendants.

A director with a New York City social services agency was allegedly subjected to disparate treatment, sexual harassment, and retaliation after she filed complaints. Her white supervisor treated her with hostility, excluded her from management meetings, and demoted her. Her new supervisor sexually harassed and threatened her. She was effectively fired shortly after returning to work following a mini-stroke.

She sued the agency, alleging a hostile work environment, disparate treatment, retaliation and sexual harassment. The trial court dismissed her claims, but an appellate court reinstated most of them. It dismissed the sexual harassment claim only because she had not followed complaint procedures under the law.

Even well-managed organizations can have employees who behave badly. For this reason, organizations should consider buying employment practices liability insurance. It covers the costs of defending and settling employee lawsuits for discrimination, harassment, retaliation and other offenses. General liability insurance policies do not cover these types of lawsuits, so this special coverage is essential.

Businesses need to protect themselves from the acts of their own employees. Employment practices liability insurance may prove to be one of a business’s best purchases.