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Will the terrorist attacks affect your insurance policies?

Worried that the terrorist attacks in New York City and Washington, D.C., will affect your personal insurance policies?

The direct losses from the events of Sept. 11, 2001, exceed the largest insured losses ever. Insurance industry experts place the total losses from the destruction at $20 billion. As a whole, the insurance industry is well capitalized and normally able to withstand large hits, but there's always the possibility that an overwhelming number of claims could bankrupt a less financially sound company.

Here are the answers to some of the most frequently asked questions about how insurers will meet their commitments.

Will life insurance premiums go up?

"All insurance policies — whether life, health, or property — generally will cover the events that occurred."

It's very unlikely life insurance premiums will rise as a direct result of these 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 insurance industry has $3.1 trillion in assets and liquid reserves. In 2000, life insurers paid $44.1 billion in death benefits on 3.8 million life insurance policies. To put the industry's exposure from the Sept. 11, 2001, terrorist attacks into perspective, on average, the life insurance industry pays death benefits on nearly 10,500 life policy claims every day.

Will my auto or home insurance premiums go up?

While there may be a chance that the rates of smaller or regional property/casualty insurers may rise as a result of an overwhelming number of claims due to the attacks, it is just as likely they will not, says Joe Annotti, spokesperson for the National Association of Independent Insurers (NAII). Annotti says property/casualty insurance premiums did not dramatically rise across the country in 1992 in the wake of Hurricane Andrew, a disaster that cost the insurance industry $19.6 billion.

Is my insurance company going to go out of business if it has to pay a lot of claims?

Because a disaster of this magnitude has never happened in our history, it is too early to predict what the financial impact of the disaster will be on each and every insurer. However, according to the National Association of Insurance Commissioners, insurance regulators will closely monitor the financial solvency of affected companies and will watch their actions to ensure all policyholders are fairly compensated for their financial losses.

Will my insurance company be able to pay all the claims resulting from the disaster?

"All insurance policies — whether life, health, or property — generally will cover the events that occurred," according to the ACLI. "We have every confidence companies have the financial ability to keep the promises they've made to their policyholders.

Do I have "terrorism" or "acts of war" exclusions in my insurance policies?

Terrorism exclusions generally are written into contracts of

military personnel or those who

travel to places where terrorist

acts are common.

Probably not. Life, auto, and home insurance policies written forthe average individual typically do not contain terrorism exclusions. It's highly unlikely that many, if any, victims of the tragedy had a policy with an exclusion for the attacks. Terrorism exclusions are generally written into contracts of 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. However, your property/casualty insurance policies are indeed written 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.

However, insurers would face some difficult challenges if they did decide to invoke act-of-war clauses, both legally and as a matter of public opinion, according to Garrett Moore, a partner at Moore, O'Brien, Jacques, and Yelenak, a Connecticut law firm focusing on airline litigation. "The public response would be absolutely devastating to insurance companies," says Moore. "And there may be legal barriers even if they did decide they wanted to invoke act-of-war clauses."

Can I buy terrorist insurance?

The average individual does not need expensive policies that cover losses due to terrorism, according to Don Griffin, a spokesperson for the NAII. 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.

What should I do with my variable life insurance policy and variable annuity?

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. Although the stock market was negatively affected by both the recession occurring when the tech bubble burst and the 2001 terrorist acts, markets have generally improved. With that market improvement, the value of many variable products has also increased. In any event, the funds you have in the stock market should be reviewed on a long-term basis, not on the basis of one-week, one-month, or even one-year returns.

Because variable products normally have a number of different investment options from which to choose, you may 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.

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