There's been an extraordinary rise in the popularity of contests that send winners to exotic destinations, to huge sporting events, and to the bank with a truckload of cash. Surely these prizes do not come from sponsors simply out of largesse, you say. You're right. Contest sponsors turn to specialty insurance companies for something called hole-in-one insurance to ensure they don't lose their shirts when somebody actually wins.

Hole-in-one insurance officially came into being more than 15 years ago and was originally used as indemnity for prizes given away in golf shoot-outs. However, once insurance companies realized there was untapped profit in these contests, hole-in-one insurance expanded, and that has allowed multinational corporations and small-town high schools alike to give away great prizes for the accomplishment of near-impossible feats.

If you're interested in holding a contest whose grand prize is of substantial monetary value, or if you're thinking about donating a big prize, think about getting hole-in-one insurance. Here are a few things to consider before holding a contest or when donating a prize.

Name your game

Is the contest a sports-related one in which a participant has to perform a task successfully in order to win? If so, what is the probability that a contestant will sink the shot, kick the goal, or drain the putt? You should find out. This information affects the amount you pay for your insurance premium.

If you're rating your risk based on certain parameters, make sure those parameters are accurate. For example, you don't want to donate a prize for a sporting contest in which you think the probability of someone winning is rather low, and then find out that the contest is actually a blind drawing — a contest in which the probability of a win is as high as it can get. Not only will you give your prize away, but your hole-in-one insurance company might refuse to pay your claim for not disclosing the actual format of the contest.

Something else to ponder is whether you really want to part with the prize. If not, don't get involved with a contest that is easily won.

Knowing the type of contest is important to insurers for underwriting purposes. Knowing the number of contestants is equally as important. Your premium is affected by the number of contestants.

Have the prize you are donating appraised. If you are donating cash, the value is obvious. New cars, too, are easy to put a monetary value on. However, there are some prizes out there, like trips to Disney World or tickets to the NCAA finals, that are harder to valuate. This, like the probability of winning, is extremely important to know, because it affects how high your hole-in-one insurance premium will be.

Assess your business situation. This falls outside of insurance considerations, but is important nonetheless. Many hole-in-one insurance policies are purchased by smaller-market entities, like local car dealerships.

Above all, plan ahead

Hole-in-one insurance, and its cousins like sweepstakes and gaming insurance, are gaining popularity, so you'll want to look into buying insurance well in advance of promoting or hosting a contest. For example, avoid the month of September. That is the busiest time of the year for hole-in-one insurers, because many of the major sports are starting up and all the colleges are getting back to school.

One last thing to keep in mind: If you think your idea for a contest is good, but you're not sure if you can afford to part with your prize, check it out with a hole-in-one insurer. Chances are, it can make the contest possible with its coverage, and in the process improve your image in your community.