Don’t get caught in hole-in-one insurance coverage as a small business

By Robb Hicken/ BBB’s chief storyteller

A recent report in The Seattle Times states a con man who sold hole-in-one insurance to golf tournaments, but failed to pay when participants made the shot.

According to court records, Kevin Kolenda, 56, started selling the insurance for the events in 2003, but failed to pay a $50,000 prize at a country club in Vancouver, Wash. He was sentenced to three months in jail. 

While this incident is related to golfing, small business owners face similar situations if they fail to pay attention to their insurance coverages. Consider the following insurance questions as the year begins:

What happens when an insurance company becomes financially troubled, fails and is no longer able to uphold its end of the bargain?

That’s when the state property and casualty guaranty fund system – a system few know much about – steps in, according to The National Conference of Insurance Guaranty Funds (NCIGF). Put simply, guaranty funds provide an essential safety net for policyholders, one that meets the needs of those least able to deal with losses should their insurance company fail.

Will I still have insurance coverage?

Insurance guaranty associations have been established in every state and are designed to protect policy-holders if their insurance company becomes insolvent. An insurance company must be a member of the guaranty association for every state in which it does business. If a company becomes insolvent, the insurance guaranty association ensures continuation of coverage, either by taking on policies directly or by transferring the policies to a financially stable insurer.

What about any claims? 

The laws vary from state to state. However, most life and health guaranty associations provide coverage at limits of at least $300,000 for life insurance death benefits, $100,000 for life insurance cash surrender values, $100,000 for annuity withdrawal or payment values, and $100,000 for health insurance benefits, according to NCIGF. Most property/casualty guaranty associations provide coverage on a per-claim basis for personal injury and property damages up to $300,000 and provide full benefit coverage for workers’ compensation benefits.

Where does that money come from to cover claims? 

If an insurance company goes bankrupt, any amount of coverage that cannot be attained from the company’s liquidation is borne by other insurers in the state according to the amount in premiums those insurers earn from that state.

How can I be sure my insurance company is safe? 

There’s no way to be sure that an insurance company is healthy. To help business owners check their insurer, there are several businesses that rate insurance companies on their financial strength and creditworthiness, including Moody’s, Standard and Poor’s and A.M. Best. Business owners can also confirm with their state insurance department that the company is licensed to do business in the state. Individual company business reviews are available at



1 Comment

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One response to “Don’t get caught in hole-in-one insurance coverage as a small business

  1. Mark Burrows

    I have talked about this before. The insurance business is one of the most trickiest in the world. The concept more often than not starts off being genuine. They sell policies and cross their fingers that they can sell enough policies before they have to pay out on any. When they acquire enough assets, then they will usually move into the area of investing and selling of secure bonds. Then when assets get astronomical then they start investing in other areas to create more assets which they can share with those who own policies that pay out dividends.
    Now, at some point and only when they become noticeably successful, the really big insurance companies, of which there are only about ten of in North America will buy the lesser companies out, lock, stock, and barrel. They will honor the previous policies offered by the previous company, because, in way, it costs them nothing.
    Actually, it is not really a buy out but a merge, so the larger company can take possession of the smaller company’s assets.
    To put it simply, they hand everyone who was associated with the the previous insurance company a nice fat check and then dismiss them. Retaining the top agents to continue to represent longstanding policy holders so they are comfortably with the transition.
    Any problems go back to the beginning. Some insurance companies have the unfortunate fate of having to pay out on policies before they have enough assets, or even equity in place so they have little probability of securing a loan to pay out the policies. So, they try to sell as many policies as fast as they can to show they have the equity of income. Yet, it still may not be enough.
    So, scam artists have seen this predicament, and see it as loophole to generate money. Thus creating quickie insurance companies with no plans what so ever to climb to a wealthy payout.
    When it comes to purchasing any kind on insurance, always do research. Yes, the bigger name ones will probably cost more, but never be afraid to negotiate, you would be surprised. Once you decide on an insurance company, this is one case where it is a good idea to put everything in one basket. See what they offer on auto, travel, health and hospital insurance as well as what policies provide cash dividends. This is where the best negotiations come into place. If you can get all concerns into one monthly payment that’s affordable, then you can tell all of those late afternoon or early evening callers who offer you $5,000.00 a week coverage for a hospital stay for only $19.95 a month, to take a hike. After you read the fine print, it only pays out if you were in an accident that was proven beyond a doubt that you had no part in being responsible for your injury. Insurance companies can be very tricky. They have this concept that the fact that you were even present at the time of the accident you were at fault. If you had been home asleep it would never had happened. They find ways to plant blame beyond the premise of the way the law sees it. Then you will have to wait after your recovery to lay suit against your insurance company. By then, they will just work out some half effort cash settlement which any lawyer will tell you to accept or you will spend months if not years battling the insurance company in court.

    Mark Burrows

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