Understanding Mortality Insurance

The horse industry, as a whole, spends millions of dollars each year on mortality insurance. Mortality insurance is often compared to life insurance, although there are several important differences. Generally, mortality insurance is designed to pay a sum of money in the event that an insured horse dies or is stolen. Of the large numbers of people who buy mortality insurance, few truly understand that the policies and the companies who offer them are not alike. This two-part series explores important and little known aspects of equine mortality insurance. Part One generally discusses mortality insurance and addresses some important features that can differ among mortality insurance policies. Part Two discusses duties found in many policies of mortality insurance that, if not followed by policyholders, could result in a loss of coverage.

Evaluate the Company Backing the Policy
In most cases, the insurance agency who sells a mortality insurance policy is not the same company who will financially back that policy if a claim (a request for policy benefits) arises. Therefore, before you buy the insurance, find out who the insurance company is, its reputation, financial stability, and its history in regard to paying claims. One way to evaluate an insurance company is to check the rating it has received through services. The A.M. Best Company is one commonly-used service, but there are others. The A.M. Best Company can be reached at (800) 424-BEST. Although rating services cannot guarantee whether the company will stay in business in the future, they generally provide an opinion of an insurance company’s current financial condition and strength.

Mortality Insurance Provisions to Check Before You Buy
Two provisions in mortality insurance policies, in particular, can be very important to those who buy insurance. Both of them are described below.

• An “Agreed Value” Policy Compared to an “Actual Cash Value” Policy. One very important but rarely understood provision commonly found in mortality insurance policies involves the amount of insurance that was purchased. In the unfortunate event that a claim is made on a policy of mortality insurance, the maximum amount of insurance a policy holder can receive is either based on the “actual cash value” of the horse around the time of its demise or an “agreed value” of the horse that was set forth in the insurance policy. To illustrate the difference between “actual cash value” and “agreed value” policies, let’s follow a claim on a $10,000 policy of mortality insurance issued on the life of a horse. We will assume: the horse’s owner (the policy holder) submitted a proper and timely claim, the policy covered the loss of the horse and the manner in which the loss occurred, and the insurance company fully agreed to pay the claim. If the policy holder had purchased an “agreed value policy,” the insurance company would pay the full $10,000 based on the circumstances described above. If the policy holder had purchased an “actual cash value,” or fair market value policy, the insurance company might be justified in paying less than $10,000 if it had sufficient reason to believe that the lesser amount reflects the fair market value of the horse around the time of the claim. While situations like this are not very common, they illustrate the importance of insuring a horse in an amount that does not exceed its true value.
• Can You Renew the Insurance Without an Examination by a Veterinarian?
  Some insurance companies require, as a condition to the annual renewal of a mortality insurance policy, an updated veterinary certification. Other companies may allow automatic renewals without the certification. If a company’s renewal requirements are important to you, evaluate them before buying the insurance.

Conclusion
In conclusion, please keep the following ideas in mind:

• All mortality policies are not alike. Not only are there differences among the companies that offer mortality insurance, but the policies themselves can differ in many respects. Consequently, mortality insurance policies offered by different companies, even if they have similar premiums, might actually reflect different types of coverage.
• Read your mortality insurance policy very carefully. A mortality insurance policy is a contract between the policy holder and the insurance company. If the insurance policy has certain duties or requirements that you are required to follow (such as timely and proper notice of illness, injury, or death), your failure to comply with these duties might cause you to lose your insurance coverage. Some of these duties will be explored in part two of this series.
• Only in a few instances does the insurance agency who sells the insurance financially back the policy. When buying mortality insurance, stick with reputable agents and agencies as well as reputable insurance companies.
• This article does not constitute legal advice. When questions arise based on specific situations direct your questions to a knowledgeable attorney or insurance agent.

Julie I. Fershtman, Esq.
About the Author

Foster Swift Collins & Smith PC
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Southfield, Michigan  48034

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