Posts Tagged ‘Insurance’

K&R insurance

Friday, January 29th, 2010

There is a type of insurance which, in concept, is rather bleak – kidnap and ransom – which is commonly referred to as K&R insurance.  According to Clayton Consultants and International Maritime Bureau, Mexico, Venezuela, Nigeria, Somalia, Pakistan, Iraq and Afghanistan ranked as the top countries for kidnapping in 2008.  Insurance companies such as Chubb, Charitis (formerly AIG), and other insurers provide K&R insurance.  They contract with firms such as Clayton Consultants, G4S, Control Risks and others to provide the service of bringing the kidnapped individual back safely.

These firms use force as a last resort.  According to these consultants, out of every 100 kidnappings about three or four hostages are killed (excludes Iraq numbers).  Most kidnappings are essentially a form of business.  For example, last year, off the coast of Somalia, the Saudi Arabian ship, Sirius Star, paid a $3 million ransom.  Last week a similar situation resulted in a $7 million ransom being paid to the Somalian pirates.  Insurance companies do not advertise, discuss, disclose, etc. what is paid to the kidnappers.  It results in the kidnappers seeing foreigners as human ATMs (see examples in Nigeria).

Those most at risk are very wealthy families and politicians in the high risk areas.  Consultants mention that high profile Americans in high risk areas (celebrities, politicians, business people or related family members) are most at risk. 

Bottom line: Sometimes it pays to be a nobody.  If you are thinking of purchasing or do purchase K&R insurance, DO NOT TELL ANYBODY except as instructed by the security consultants who will brief you before your departure.     

Always Asking, Never Assuming™

Christopher Holtby

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Is art/wine insurance worth the cost?

Thursday, June 25th, 2009

As a kid, I was forced to learn about art (contemporary and old masters), and as an adult, I enjoy learning about and experiencing art in all mediums with my family (however, my kids don’t share my enthusiasm).   I was fortunate last night to have a one-on-one dinner conversation with AIG’s leading fine art underwriter, Katja Zigerlig.   We had a great conversation about the current state of the art world (art collectors avoiding selling via auction houses, why art prices have declined, who is still buying, gallery risk, Provenance risk), and new seminal artists around the globe (forget China, look at the Middle East).  The topic of insuring against loss or devaluation of art/wine collections was also talked about, which was frankly less interesting, but important.

Insuring a gallery/museum quality art collection against loss, restoration cost, devaluation, etc. is not always a clear cut profit/loss decision.   A collector of gallery/museum art work has several issues to consider: 1) How does this asset figure into your estate and wealth transfer planning?  2) How would you financially react should there be a complete or partial loss through fire, theft, destruction, or damage?  3) How would you emotionally react should there be a complete or partial loss through fire, theft, destruction, or damage?  4) What steps have you taken to mitigate a complete or partial loss?, and/or 5) If your art collection is lent to galleries/museums, what steps have been taken to mitigate loss (especially true with galleries)?  Wine collections have a roughly parallel set of issues compared with art collections. 

Bottom line:  Your wealth manager should be discussing these issues with you, if your art/wine collection is financially or emotionally material to you.  Regardless of your decision about whether to purchase art/wine collection insurance, you are at least making a conscious decision.  

 

 

Always Asking, Never Assuming™

Christopher Holtby

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Insurance policy loans – tax danger

Friday, June 12th, 2009

Successful insurance planning requires that someone is watching over the small details.  Insurance covers home, umbrella, car, life, disability, D&O, E&O, kidnap and ransom, etc.  There was a recent summary opinion by the Tax Court (Reid Chambers et al. v. Commissioner; T.C. Summ. Op. 2009-63; No. 28946-07S, May 4, 2009; IRC SEC. 72 ) regarding the cancellation of a policy, a seemingly small detail, that lead to an unexpected tax bill almost 20 years later.   

This case involved a policy loan that was created unintentionally, which later resulted in a tax bill.  The taxpayer verbally instructed her life insurance agent to cancel her whole life insurance policy in early 1986.    The life insurance policy was never cancelled, and that caused the cash value to pay the premiums.  This is because the taxpayer made an Automatic Premium Loan election when the policy was purchased, and when the cash value eventually ran out, the policy the terminated, which caused a taxable event.  Throughout the next 20 years after she thought the policy had been cancelled, the taxpayer received notices indicating that the policy was not cancelled, but the taxpayer thought these were sent in error.  Unfortunately, the taxpayer’s life insurance policy specifically stated that “only the President or Secretary of the Company may make or change a contract on its behalf” and that “any changes are required to be communicated via regular mail”.  The life insurance agent did not advise her client on these procedures and was not legally authorized to make any changes to the policy.

Bottom line:   Somebody has to read and to make notes about the details of the original insurance contract, as well as the annual amendments to the insurance policy.  These notes need to organized and the details need to be considered in conjunction with the original intention of the insurance policy.  That is, perhaps, one service a fee-only financial planner or wealth manager should provide.  Many advisors are compensated for selling life insurance, however, many of those do not perform this level of detailed thinking.

 

Always Asking, Never Assuming™

Christopher Holtby

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