Is Insurance a Necessary Evil?

I have been experiencing an insatiable thirst to seek to answer this nagging question about whether insurance is a necessity in our country today. While the subject of insurance is broad and multi-faceted, I will seek to break down the perception of this subject so that our minds for a moment are not engrossed with the surreptitious picture of insurance agents’ incessantly cold-calling potential clients or pursuit of claims arising out of insurable risks by claimants.

Data from the Insurance Regulatory Authority (IRA) shows that the level of uptake of insurance in Kenya is at an all-time low of 3.3 percent. This cannot be compared to developed economies like South Africa where the numbers are at 14%. Many explanations have been advanced to show why Kenyans are still averse to taking up Insurance related products. One prominent argument is that the Per capita income (GDP) of the average income earner cannot be enough to support payment of premiums. The other school of thought is that the savings culture of Kenyans is still wanting.

While the arguments above may hold water, the fundamental understanding of insurance has not been taught to most of us from an early age. The subject of insurance I dare say is still shrouded with a lot of secrecy and misunderstanding akin to the mysticism surrounding ancient religions. The language used is still rather technical to the average person. I realize that at this point I must correct myself quickly and note that every profession has its language; for an engineer has to use engineering language, an architect the same etcetera. Insurance also has its language but if its proponents profess that it benefits almost all of humanity, shouldn’t it be clothed in language that is not so grandiose but easily palatable to the common man?

The responsibility of the stakeholders in the insurance industry is to bring customers’ perception to how insurance works in a language they can understand. This would entail offering a basic insight on what informs the underwriting decisions on various insurance products by insurers. I want to suggest that it would benefit insurers to have open days where they invite people and educate them on the fundamentals of insurance, on the meaning of risk, why insurance is important to any economy and most importantly the benefits of insurance at a personal level. Apart from honing their sales skills, sales professionals need to align themselves properly with the market in order to understand and respond well to their customers’ needs. More often than not, sales people are perceived to be aggressive, over-achieving individuals who are not honest and are quick to point to clients the dotted lines in the application document. This negative perception must stop. Insurance sales people contribute immensely to the overall economic growth and offer important services without which an economy could not function well.

Now back to our overarching theme. Any society is fraught with risks. The risk of death by accidents, accidental injury leading to permanent or temporary disability, the risk of fire arising out of man-made or natural sources e.g. lightning, subterranean fire etc, the risk of accidental injury at the place of work owing to the nature of employment, loss of luggage while travelling and many more. What insurance does is simply to classify the above mentioned risks and price them into premiums. The premiums are then pooled and it is from this pool of funds that claims are settled. The guiding principle here is that a risk should be quantifiable. A close analysis of your immediate environment will reveal many known and unknown risks. Insurance companies manage losses that arise out of insured risks. Think for a moment the costs borne by the insured if there was no insurance to mitigate these risks. Imagine a petrol station owner being held liable for damage by fire arising from his petrol station to his neighbors. If the owner does not have public liability insurance, he may find it difficult to raise money to meet his legal fees and hence may not protect his business. This is because the cost of a claim can far exceed what a business is able to raise and necessitate the shutting down of a business altogether. Many examples abound where insurance solve practical problems and mitigate a host of risks that can cripple businesses and slow economic growth. At a personal level, medical insurance is very vital. Think for a moment the rising cost of Medicare and consultancy fees not to mention the increasing costs of pharmaceutical medicines.

But there is an antithesis to such a healthy explanation and this is advanced by some who argue that risks are only imagined hazards. They posit that a risk is imagined and only ceases to be a risk when an actual occurrence happens. Some even counter a proposal to take up insurance dangerously by arguing that they have, for example, not been admitted to hospital for a number of years and see no need to take up a medical cover. While it is important to live healthy and avoid the hospital and its attendant costs, it would be farcical for one to wish they had a medical cover in the face of a medical emergency.

In conclusion, insurance is necessary to any growing economy like Kenya in spite of the low uptake. It not only creates employment and puts in abeyance the worry of meeting risks; it is an indicator of economic growth and a sign of a thriving economy. More needs to be done to educate the masses with regard to this subject. The responsibility lies squarely at the court of the regulator to put pressure on insurance companies to increase the uptake of insurance in the country. Incentives must be given to companies that have the highest level of penetration to make sure they maintain their influence and widen the market. Is insurance necessary? Indeed it is. Next time someone dissuades you from taking up an insurance plan, think again.

Home Based Business Tax Benefits: The Top 5

Did you know owning a home based business has considerable tax benefits? The idea that only the rich have access to tax benefits is a myth!

The first step is to own a home based business and run it with the intention to make a profit. The important word there is “intention”. You don’t really have to make a profit to take advantage of these benefits. Now, you can begin a home based business for little cost and can run it part-time from your home while having a full-time job.

In time, and with some effort on your part, you will be able to leave your day job and work from your home full-time and take advantage of all of the benefits a home based business has. The best part is you can take advantage of the home based business tax benefits as soon as you start your new business!

Owning a home based business allows you to deduct some personal expenses you wouldn’t usually be able to deduct. These things include but are not limited to: dining out, a new computer for the office, dental and medical expenses, and some vacation related expenses. The money you can deduct for operating a home based business is not insignificant and can amount to well over ten thousand dollars.

Here are the top five deductible expenses for Home Based Businesses:

1. Vehicle Deduction

This IS the most complicated home based business tax benefit you get. It is also where most people get into trouble with the IRS because they didn’t correctly document their vehicle related deductions. If you are going to use vehicle deductions, I can not stress enough that you MUST document everything properly. Keeping a diary or travel log to track mileage, maintenance costs, etc. will save you time and many headaches.

How does the vehicle deduction work? Basically, you determine how much of the time you use your vehicle for your home based business as a percentage. You are then permitted to take that percentage of time and apply to the cost of operating your vehicle. For instance, if you use your vehicle 60 percent of the time for your home based business, you are permitted to deduct 60 percent of the costs of operating the vehicle.

2. Meals and Entertainment Deduction

First things first, in order to take advantage of this tax benefit, you must have proper documentation. This primarily means you need to save your receipts and record who you spoke to about your home business. Normally, you will be able to deduct up to 50 percent of the cost, but make sure you check beforehand.

As long as it is related to your home based business and document the costs properly, you can also deduct up to 100 percent of the expenses of entertaining people in your home. You may come to realize the tax benefits are much greater if you entertain in your home instead of taking someone to your favorite restaurant.

3. Home Office Deduction

This one of the more intricate home based business tax benefits, but it has the potential to save you thousands of dollars every year you own your business.

To claim the home office deduction:

1. You must render significant administrative or management activities for your business out of your home. For example, you do your paperwork, make calls, do your training, and perform other business functions out of a set area in your home.
2. You have no other office where you conduct significant management or administrative activities for your business.
3. You must use a specific part of your home exclusively for business. It doesn’t need to be an entire room though. A particular section will do.
4. You must use this designated section regularly for at least 45 minutes a day, four or more days a week. The work hours must not be occasional or sudden.

What can you deduct? You are permitted to deduct part of your home, utilities, and part of the interest and taxes you pay that are related to owning your home. You can also deduct office supplies like new computers, printers, phones and furniture used for your home business.

4. Travel Deduction

Did you know the Internal Revenue Code (Section 162) allows you to deduct “traveling expenses…while away from home in pursuit of a trade or business…”? As the owner of a home based business, you can visit family and friends all over the world and deduct some of the expenses associated with the trip. You just have to make sure at least half of the days of your trip are “business days”. Essentially, as long as you plan ahead and document properly, you can deduct a lot of the costs associated with traveling and vacationing… Every year. How is that for a home based business tax benefit?

5. Medical Expenses Deduction

In order to take advantage of this home based business tax benefit and, you will need to employ your spouse and cover them with a comprehensive family medical plan. This allows you to deduct all of the costs associated with the your family’s medical expenses. But, there two important requirements in order to take advantage of this deduction.

The first is you must have proof your spouse has done actual work for your home based business. The second is you must establish a legal document called a “Self Insured Medical Reimbursement Plan.” Do a search on that phrase in Google to see what that entails. It’s pretty straight forward.

That’s it. Utilizing these five strategies correctly will allow you to take full advantage of your Home Based Business Tax Benefits and can save you thousands of dollars every year. The best part is they are completely legal and ethical!

If you are not sure how to do anything mentioned in this article or have any other questions, please consult a tax professional. Do not assume what you are doing is correct until you speak with a tax professional.

Insurance Agency Lead Scoring

Many insurance agencies have not yet formalized their lead scoring system. This is a worthwhile endeavor for all agencies, and one which should be revisited every year, while tracking the return on investment of their marketing programs.

What is lead scoring? It is a methodology used to rank prospects against a scale, and then assign a value to determine interest level and distribution. For example, let’s say a trucking insurance lead appointment arrives at your agency. This lead is with an owner of 15 power units, they use company drivers, and they are unhappy with their carrier. Perhaps your lead scoring system falls on a 1 to 10 scale, and this lead is scored an 8. What might receive a higher score? And what types of leads are outside of profile, and what score would they receive? Perhaps prospects need to score an 8 to appear on your producer scorecards.

Is the lead distributed to producers by territory? Does your lead handling process vary by type of lead, product or prospect? For example, are commercial leads separated by large and small business, by industry or product? Are benefit leads parsed by groups over and under 50? And does your agency have a tracking system in place to determine how many leads showed for the appointment, moved into the pipeline, received quotes and ultimately convert into new business?

Salespeople, sales managers, producers and other business people often refer to prospects in vague terms such as: new, warm, hot, cold, likely, qualified, etc. These terms do little to better understand a sales pipeline or convey likelihood of purchase to other members of the team. Agencies can consider creating a simple prospect scorecard to resolve this issue and quantify their lead scoring. Formalizing lead scoring offers benefits such as:

Helps Producers create ideal attributes to form a buyer persona
Creates a simple numeric system to leverage your buyer persona
Assigns numeric values to rank your best prospects
Creates a simple qualification acronym to determine likelihood to close

What should be included in a prospect scorecard?

Use a prospect scorecard to quantify your approach to pipeline building. Some attributes of your ideal client might include revenue, growth rate, client type (business or consumer) and market niche. For example, are you targeting companies with $5m to $10m in revenue? Are your best prospects fast-growing firms, trucking companies, manufacturers or consumers?

If you’re selling to consumers, are they high net worth, middle-income, millennials or senior citizens? Are your prospects in a specific niche market such as banking, insurance, biotech, consulting, education, etc.? Create a scorecard with your ideal attributes and a customized qualification abbreviation to help you determine if you’re selling to an in-profile prospect.

Insurance agencies and brokers seeking to get to the next level with their insurance marketing and lead generation, but lacking the internal resources to achieve their marketing goals, can reach out to a proficient insurance agency marketing firm.