Will growing terrorism concerns lead to growing insurance bills?

The September 11th terrorist attacks had a major financial impact on insurance companies, and the growing threat of terrorism potentially increases the risk faced by insurers.

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What will all this mean for you and the amount you pay for insurance? Here are the answers to some of the questions you might be asking.

Will life insurance premiums go up?

"The competitive pressures that have driven down the cost of life insurance coverage remain in place."

It's very unlikely life insurance premiums will rise as a direct result of terrorist attacks. While it is impossible to predict the marketing decisions of any company, the American Council of Life Insurers (ACLI) says, "The competitive pressures that have driven down the cost of life insurance coverage remain in place."

According to the ACLI, the life insurance industry has more than $3 trillion in assets and liquid reserves.

According to the ACLI, the life insurance industry has more than $3 trillion in assets and liquid reserves.

Paul Yakoboski, ACLI’s Research Director, says isolated terrorist attacks should have little or no impact on your life insurance rates.

"Life insurers have been around for nearly 250 years, in large part because of their prudent approach to risk assumption and investing. This conservative financial philosophy will continue guiding the industry in the near future, and in years to come," says Yakoboski.

Terrorism or act-of-war exclusions

Terrorism exclusions generally are written into contracts of military personnel or those who travel to places where terrorist acts are common.

Life, auto, and home insurance policies written for the average individual typically do not contain terrorism exclusions. Terrorism exclusions are generally written into policies for military personnel or those who travel to places where terrorist acts are common. They typically do not apply when the insured is in the United States.

While life insurance policies have included act-of-war exclusions in the past, it hasn't been a standard part of any life insurance policy since the end of the Vietnam War. Your property/casualty insurance policies are written; however, to exclude coverage for acts of war. If the act-of-war exclusion clause of an insurance contract is invoked, insurance companies can refuse to pay the benefits on the policies, including payments on businesses, homes, and cars that are damaged or destroyed.

That doesn’t necessarily mean your insurer won’t pay, if you suffer losses due to a terrorist attack.

"Homeowners insurance protects you and other people on your property not only in the event of a windstorm, hail and other like disasters, but also in case of bizarre activities that may occur," said Don Griffin, assistant vice president of business and personal lines at the National Association of Independent Insurers (NAII). "That is because homeowners insurance not only covers damaged property—like blown out windows or a damaged roof from inclement weather—but also covers liability and medical expenses that result from unusual circumstances."

"It is still a good idea for policyholders to contact their insurance agent and check their policy to determine if they have adequate coverage," Griffin said.

Terrorism insurance

Terrorism exclusions generally are written into contracts of military personnel or those who travel to places where terrorist acts are common.

The average individual does not need expensive policies that cover losses due to terrorism, according to Griffin. These policies — typically sold to businesses — are most often purchased when the policyholder has other auto or property/casualty insurance policies that specifically exclude losses due to terrorism.

Variable life insurance

A variable life insurance policy should not be viewed as a traditional investment. While it does have a savings component, variable life insurance policies should be purchased primarily for their insurance coverage. In any event, the drop in stock prices since the September 11th terrorist attacks means the value of many variable life policies bought before then has declined. As with any financial instrument tied to the stock market, variable life policyholders should evaluate their coverage for the long-term, not on the basis of one-week, one-month, or even one-year.

Because variable products normally have a number of different investment options from which to choose, you might be considering moving into more conservative investments. While that is an option, you should review your entire investment portfolio when considering making any changes to ensure your assets are properly allocated according to your long-term goals.

A bigger problem than terrorism

Insurance companies say rising jury awards in lawsuits are a bigger threat to your insurance bill than terrorists at the moment. According to Robert Hartwig, senior vice president and chief economist of the Insurance Information Institute (III), tort costs currently consume two percent of the Gross Domestic Product or more than $200 billion per year. “The current medical malpractice crisis epitomizes the problems in the U.S. tort system. Medical malpractice tort costs rose by 140 percent between 1990 and 2000, more than double overall growth in healthcare inflation over the same period.”

Hartwig and others in the insurance industry are urging Congress to pass tort reform legislation, which balances the need for civil remedies with the continued financial viability of insurance companies and business in general.

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