Tuesday Morning Insurance Tidbit - Too Late?!?!?!

[InsuranceMan]

Good Tuesday Morning, Fellow ADI-ites,

     Ah … it seems as though Spring has finally Sprung here in Sheridanopolis, and fingers crossed, there will be no more of that flaky white stuff falling from the sky for many months to come!!!  It is just a glorious time of year and the sunny skies are quite welcomed after such a long, cold winter.  I hope that wherever you are, you are experiencing wonderful weather, and that you get a chance to get out and enjoy it.

     In today's installment of the “Tidbit”, I want to address a question that I have received quite a lot lately.  The question of, “When is late too late?”  What I mean by that is actually multifaceted, due to the fact that I have been asked the following questions:

“When is it too late to obtain insurance?”;

“When is it too late to get out of the insurance I already have?”;

“When is it too late to make changes to my policy?

     Let me take these one-by-one in the order that they are presented.  When is it too late to obtain insurance?  The answer is “Never”.  It is never too late to obtain insurance.  Heck, I have even worked with folks that have been in operation for years that have never had insurance.  Then, due to distribution requirements, or a change in business, etc., they need to obtain coverage.  Truly, it is never too late to cover your ass ---- ets! 

     I will say this, if you have been operational for a several years, a year, or even a few months, and you have not had prior coverage, it can complicate things a bit.  Underwriters often times will ask, “Where has their coverage been prior to us?”  When I tell them that there has not been coverage they often ask why.  Then, through explanation usually we can get over that hurdle but there are a few things that need to happen in order to do so.  Some carriers may want a “No Known Loss Letter” (or NKLL in cool insurance-ese language), or, some may choose to not offer coverage due to the fact that someone has been in operation without coverage and will ask that we come back to them after having a year of coverage under our belts.  This can be an issue since it may throw that person into an E&S market for a year (or two), where they are going to end up paying a higher rate in order to prove coverage to a standard carrier later.  If you have questions as to the difference between an “Admitted” or standard carrier and a “Non-Admitted” or E&S carrier, check out this posting that I put up a while back that explains it in all of its glory:

     Back to the question though, it is never too late to obtain coverage.  Whether we have to go E&S, or if we can get it through a standard market, technically, you always need insurance coverage, really from day 1!  Think about it.  You have assets to protect, you have several potential liability issues that can arise, products liability issues, and you certainly have a liquor liability aspect that needs to be contemplated.  Yes, I know folks that have run for 7 years without coverage and they have been just fine.  It can happen.  I also know some folks who have been up and running for a few months and have sustained a loss.  In one case it was a pretty sizable loss to their equipment.  It was the kind of loss that would have wiped them out had it not been for the insurance coverage that they had in place.

     Some may say that it is too late in the case of not having coverage and then sustaining a loss.  I can understand that thought process, that it is too late if you have a loss and no coverage to pay for it.  I personally would argue though, that it actually may be an opportune time to procure coverage so that you can make sure if a similar situation arises, you will be covered.  Silver lining and all!

     That brings us to the next question, “When is it too late to get out of the insurance I already have?”  Great question, dear reader!  The short answer again is “Never”.  It is never to late to get out of a policy that is either incorrect, does not provide adequate or accurate coverage, or one that is costing WAY too much premium.  However ……  it all depends on if it is a “standard” or “non-standard” policy.  UGH!  Here we go again with all this nonsense.  Here is the quick “skinny” as to the difference and why it matters. 

     Standard carriers will allow you to cancel a policy at any point and refund you any unused portion of your premium.  What this means is that if you paid the policy in full but decide to cancel your policy 5 months into the coverage period, they will refund you the 7 months of unused premium that you paid in.  Cool, right?!??!  That is nice of them.  E&S carriers operate a bit differently though.  Most, if not all E&S carriers, have some built in costs and clauses that ensure they retain some of your premium for their efforts of writing your coverage.  E&S carriers have things such as “Minimum Earned Premiums”, or MEP’s (again, cool Insurance-ese language for you to impress your friends with!  Yet another reason to ready these riveting articles provided by InsuranceMan 2.0!!!)  MEP’s state that you owe 25% of the total premium to the carrier regardless of when you cancel your policy.  How about an example?  OK!

     Let’s say that you purchase a policy from someone that does not really understand distillery insurance (this happens ALL THE TIME!).  You get the policy and as you look through it you find that there are several things missing, or you have been classified incorrectly.  In a rage, you slam the policy dramatically to the table, grab your phone, and feverishly dial up InsuranceMan2.0!!! to get my expert take on your policy.  Through conversation we find that this policy that you have paid a ton of money for is not worth the paper it is written on.  FRUSTRATING!!!!!!  To further add to your ire, we discover that you have a 25% MEP which means that the carrier is going to keep 25% of the total premium of the overall policy even if you cancel. UGH!  To further cause your blood to boil, we also discover that you have been charged taxes and fees (very common for E&S carriers) that also are non-refundable!  Grab the antacid!!!!!

     So, what does this mean?  It means that if your policy was $12,000 a year (ease of math sake, again.  I just don’t like math all that much), the carrier is going to keep $3,000 of your premium dollars even if you cancel in the first few days, or months.  As well, any taxes and fees (this amount could be $1,000 when totaled) are not refundable since they are due at inception of the policy.  The long-and-short of this means that you are obligated to pay about $4,000 in premium no matter what.  If you break that down into “months”, this basically means that you are obligated to stay with this carrier for about 3 1/3 months.  Does this mean it is too late to get out of the policy you don’t want that does not provide the correct coverage?  Not necessarily.

     I have worked with clients where we have been able to provide the correct coverage for them, all while saving them enough money to make it a wash, or close enough to it for the first year, that it was advantageous for them to make a switch early on.  As well, as the coverage period continues, the amount of premium you might negate dwindles.  Thereby, if we wait a month or so to get the policy rewritten, the blow becomes lessened due to the fact that you would have owed that premium anyway.  Depending on your unique situation, it may be advantageous to make a change earlier than later.  Or, you may have to wait until all of those initial premium dollars are used up, with the taxes and fees, and then make your move.  It is still never too late to get a jump on it though, so we are poised to make the switch when it becomes financially advantageous to do so.

     Last but certainly not at all least is, “When is it too late to make to make changes to my policy?”  Three guesses as to what the answer is!  You really don’t have to be “Jeopardy James” to get this one correct!  Come on, what is your answer?!?!?!?!?

                                                                                                                   “What is, ‘NEVER’?”

                                                                         “Ding, Ding, Ding!!!!  Right again!!!!  Tell ‘em what they’ve won!!!!!!!!!!!!”

                                     “You have won an exclusive trip to ‘Insuranceopolis’ where you get to meet InsuranceMan2.0!!! and get a fully comprehensive analysis of your insurance needs!!!!!!!!!!  This incredible prize package is worth … well, it is priceless actually!!!!!!”

 

     Truly, it is never too late to make any changes that you deem fit to make to your policy.  Insurance policies are dynamic, living documents, really.  You can add coverage or remove coverage for your policy at any given time.  Your needs change throughout the course of a policy period, and you should be able to make adjustments at any time that you like.  If you add coverage to your policy however, it may result in additional premium that you will owe (sometimes in full, sometimes over the course of the rest of the policy payments for the year.).  If you take coverage away or reduce it, it will result in a premium refund that will either be paid out to you in full (if you paid in full or are close to the end of your policy period), or be applied to any future premium that is due.

      In closing, it is never too late to get insurance, it is never too late to get out of your insurance if it does not fit you correctly, and it is never too late to make changes that you need to your insurance.  As well, plot twist, it is never too early to start working on your insurance needs either.  Whether you are coming up on a policy renewal, just getting ready to start a distillery, move into a facility, or are ready to drop your first ounce of distillate, you need insurance.  The sooner you start thinking about it, the better.  Life is easier when you can check insurance off your list, and I, InsuranceMan 2.0!!! am just the person to get it done!

 

Until Next Time My Friends,

Stay Vigilant,

 

Aaron Linden

a.k.a. InsuranceMan 2.0!!!

307-752-5961

insuranceman2.0@yahoo.com