In the several pages that follow, we have made an effort to summarize the basic elements of risk management to help you become more familiar with your current as well as future insurance needs.

Risk management covers life, health, disability, liability and general business insurance. Insuring yourself and your family against losses is a very important part of your financial security. Perhaps the greatest benefit of insurance is peace of mind.

Risk management has as its basis the analysis of potential risks and contingencies that the individual faces. Once these are identified, the process of risk management is developing a plan of protection.

Protection may involve self-insurance. This occurs when the individual assumes all or part of the risk of a given situation. It is possible to establish a special fund to cover certain risks. For example, if you had cash equal to 3 months income in the bank, you could be said to be self-funding the first three months of a disability.

You may also engage in risk sharing. An example would be where a person is partially insured, such as with 80/20 major medical policy which will pay 80% of claims.

Risk avoidance should also not be overlooked as a viable method of avoiding hazard. If your hobby is motorcycle racing, and you are told by insurance companies that they will not cover you in the event of a disability, then one option is to simply quit racing.

Outside insurance is where the individual purchases protection from a commercial insurance company to cover all or part of the risk.

Another form of insurance that does not necessarily require a commercial policy is an employer benefit. Many companies provide 30 to 60 days of salary or even salary for the remainder of a year. If this is in writing, you can generally rely on it.

Years of careful accumulation can be wiped out by a casualty loss. You should periodically review all coverages for adequacy of provisions and amount of protection.

Auto insurance policies typically provide coverage for your auto liability, medical payments, physical damage to your auto and related expenses. Traditionally, coverage has been written with "split limits," that is, with separate limits applying to each person and each occurrence for property damage liability.

The following six sections describe the areas of coverage contained in an auto insurance policy.

Bodily injury is our greatest exposure as a driver. It is, therefore, the most important coverage afforded by an auto insurance policy. It will pay for injuries to other people resulting from negligence. Payment is limited to the amount per person and occurrence limits that you select.

An individual injured in an auto accident can claim medical and hospital expense, loss of wages or income and general damages from pain, suffering and mental anguish. These claims are difficult to estimate and can be astronomical. The legal coverage required by most states does not come close to covering the risk of high claim awards common today.

Affluent persons are a "target risk" and need to consider higher limits. We recommend a minimum of $300,000 combined single limit. Rates will vary not only among states, but among companies. Incremental coverage is usually not extremely expensive. Remember that liability limits should be the same for all cars insured by the same policy.

Property damage liability will pay on your behalf losses caused to property resulting from your negligence. Again, the minimum legal limit is not in line with claims settlements.

In addition to auto damages, this coverage covers losses that involve other personal assets such as buildings, fences, landscaping, etc. Damages could easily exceed the common $15,000 limit. We recommend at least $50,000. Costs to increase coverage to $100,000 are usually quite small.

This protection provides coverage for hit-and-run drivers or an accident caused by an uninsured motorist. It pays for both bodily injury or death for yourself and your passengers. In addition, you and your family are protected as pedestrians.

Uninsured motorist provides coverage when the other driver is at fault and his vehicle is uninsured or is insured for bodily injury liability that is not high enough to cover your damages. In such a case, you collect the balance under your uninsured motorist coverage.

Under-insured motorist coverage is available in many states and it provides higher benefits for you and your family if the other party is insured, but for very low limits.

If your policy does not provide this coverage, consider adding it. Many states require this coverage, but only in very minimal amounts. You will wish to purchase much higher amounts of coverage.

Medical payment coverage pays medical or hospital bills incurred by passengers who are injured in an auto accident. It also covers you or your family as pedestrians. Fault or negligence is not a consideration for coverage. Coverage is written on a per-person basis. We recommend you carry at least $10,000 per person.

This coverage pays for repair or replacement of your car regardless of fault. If the damage is the fault of the other driver, your insurance company may get the other driver to recover the amount paid to you.

The coverage is limited to replacement cost. As the car ages, the replacement value the insurance company recognizes diminishes. You should consider discontinuing collision when the car’s value drops below $1,000, perhaps even $2,000.

The amount of an uninsured casualty loss in excess of $100 is deductible for income tax purposes. The best tactic is to take collision and comprehensive as long as the car is worth over $1,000, but with a high deductible, say $250, or $500 to hold down the premium.

After that, consider dropping collision and comprehensive coverage. This will give you reasonably low-cost protection when the car is most valuable.

The optimal coverage is all-inclusive protection against acts of God and related damages caused by something other than collision. The most frequent claims are for the replacement of windshields or broken windows. Driving without comprehensive is a high risk if the car is valuable.

Not all insurance companies are the same. It pays to shop around. Insurance premiums can vary significantly depending on the companies. There are so many possible driver-car combinations that one company cannot have the best rates for every category.

Developed and refined over time, several forms of homeowner insurance now exist to provide coverage based on the type of housing and the risks to be insured. Due to its lower cost and broader protection, these new forms of coverage have generally replaced the basic fire type policies that were once common. There are basically seven variations of homeowner policies as follows:

HO 1 (Basic) - Fire, lightning, extended coverage, vandalism and malicious mischief, theft, glass breakage and comprehensive personal liability.

HO 2 (Broad Form) - All the above, and additional extended coverage which provides coverage for other specified causes of loss.

HO 3 - "All Risks" on buildings and broad form on personal property.

HO 4 - Personal property coverage only; broad form policy, with coverage for tenants - rather than home owners.

HO 5 - "All Risks" coverage on buildings as well as on your personal property.

HO 6 - Personal property and loss of use coverage (Broad Form) for condominium owners.

Homeowner policies contain a set of standard coverages that may be altered by endorsements that can serve to increase the amount of insurance and/or broaden the coverage. Basic coverages are grouped under two sections:

1. Dwelling

Appurtenant structures (garage, tool shed)* Unscheduled personal property (furniture, clothes) Additional living expenses (cost of living away from home until damage is repaired) Coverage not included if residence is rented or provided.

2. Comprehensive Personal Liability

Medical Payments To Others Policy Exclusions and Limitations - All Homeowner’s policies (even the all-risk type) contain two types of exclusions. They exclude certain catastrophic perils such as earthquakes and floods.

They also limit the coverage on items such as jewelry, cameras and furs. All policy forms place a limit on what they will pay on the following losses, for example:

$ 100 on money, coin collections and notes

$ 500 on securities, legal instruments, notes, stamps

$ 500 on jewelry and related items

$1,000 on manuscripts

$ 500 on watercraft

$ 500 on trailers

Endorsements to increase the coverage outlined above may be tailored to fit your needs and added to the policy coverage for additional premium. Furthermore, when you cover some items separately (by endorsement or rider) you may receive broader coverage.

The insurance on your home is not its market value nor the actual cash value (replacement value less depreciation). Rather, it is the home’s replacement cost. Replacement cost is defined as the full cost of repair or replacement without deduction for depreciation.

There is a clause in your policy requiring 80% coverage for the full replacement cost of your home. If you carry less than 80% of the replacement cost, claims will not be paid in full. The amount of the recovery or indemnification is determined by one of the following means:

                    1. The actual cash value of the destroyed section of the building.

2. The amount of coverage carried divided by 80% of the replacement cost multiplied by the cost to repair or replace the destroyed section of the building.

amount carried--------------------------------- X cost of repair = recovery

80% of replacement cost

Let us take a closer look at how the 80% formula operates. Suppose you purchased a home fifteen years ago for $100,000 and insured it for $90,000. Since that time you have increased coverage to $120,000. However, inflation and your improvements to the home have driven the market value to $300,000 with $40,000 allocated for the lot. The formula is calculated as follows:

120,000---------- = 57.69% 208,000 (80% of 260,000)

Therefore, if you had a small fire destroy your kitchen, dining room, breakfast room and part of the roof, requiring painting of the entire house and dry cleaning all drapes to remove smoke damage, the bills could easily total $100,000.

Your insurance would pay $57,690 (57.69% of 100,000) and you could have to pay $42,310. Every year this happens to thousands of homeowners who have allowed their insurance to become inadequate.

Section 2 of your homeowner’s policy covers personal liability and medical payments to others. Thus, if you become liable for damages, either bodily injury or property damage, the insurance company will pay these damages up to the policy limits. The coverage includes yourself or those hurt on your premises, and also covers you when away from home.

It also includes sports and pet liability. We suggest a minimum of $300,000 of coverage. Typical limits for medical payments are $500 per person. This should be increased to at least $1,000.

This section also provides coverage for false arrest or imprisonment, malicious prosecution, humiliation, libel, slander and defamation.

When reviewing your homeowner policy, there are several items that should receive special attention. Remember, the additional premium for proper coverage may be bothersome, but will never be as critical as discovering that you were under insured, or even un-insured, for a loss.

Appraise home to determine total replacement value.

Carry adequate amounts of insurance on your home.

Make an inventory of your household possessions.

Keep a copy of the household inventory outside the home.

Check that you are carrying enough contents insurance.

Obtain special coverage on collections.

Appraise jewelry, furs and expensive personal items.

Coordinate the liability with your "umbrella" policy.