What Is Hole-In-One Insurance
Hole-in-one insurance is a type of price-indemnification coverage, originally named for insurance policies taken out by golf-tournament sponsors who offer the possibility of big-ticket prizes to contestants who score holes in one, on the course.
In practice, hole-in-one insurance products may be utilized by any sports league or retailer that sponsors contests where winners may collect grand prizes, such as exotic vacations, cars, cash, or free merchandise.
BREAKING DOWN Hole-In-One Insurance
Contest sponsors relish how the crowds they draw can generate substantial revenues from hopefuls who aspire to beat the odds of winning big. However, sponsors are less enthusiastic about paying the winners who actually achieve such nearly impossible feats. Hole-in-one insurance goes a long way in keeping sponsors fiscally afloat in the event of such wins, which might otherwise bankrupt them.
The cost of hole-in-one insurance premiums depends on a host of factors, such as the number of tournament participants, the odds of winning, and the values of the prize offerings. In golf contests, for example, a $200 premium for a 100-player tournament might cover a $10,000 prize, while a $50,000 prize for the same number of players might come with a $1,000 premium. Premium costs also largely depend on whether the participants are amateur or professional athletes.
Typically, only large insurance companies offer hole-in-one insurance, and those who offer such policies are entitled to keep the premiums when no one claims prizes—much the same way auto insurers keep the premiums paid by drivers who never make accident claims.
Example of Hole-in-One Insurance
New England-based furniture retailer Jordan’s Furniture, a unit of Berkshire Hathaway, regularly makes use of hole-in-one insurance for its annual sales promotions. In 2007, the company offered a promotion that offered full refunds for all furniture purchased by customers, between two set dates on the calendar, provided the Boston Red Sox won the World Series that year. The Sox indeed pulled it off, and consequently, some about 30,000 customers who took part in the promotion received refund checks for the value of their purchased merchandise. Hole-in-one insurance paid for a large percentage of those refunds.