Once you have accumulated a large overall net worth, the primary goal becomes to protect the wealth you have already attained.
With investing, this can be done by diversifying away from a highly concentrated holding, individual private business, or single real estate asset and instead moving to a diversified and lower growth-focused mix of assets. With Property & Casualty insurance, this is accomplished by ensuring adequate coverage is in place to protect your property, as well as your financial assets.
In this article, we outline the importance of having exceptional protection against risks that could have a substantial impact on your net worth, with a focus on value of the coverage, and not just annual cost. We will also define some of the more common types of coverages that high net worth families should consider.
When evaluating insurance needs, the most important consideration is asset protection through appropriate coverages to reduce the impact of a significant life-changing event. As wealth grows, families may find themselves with second homes, additional vehicles, and watercrafts. Some families may also require more unique insurance coverage, such as benefits for household staff, coverage for private collections, identity theft, cyber liability, and so on. Since these needs generally arise over time, families often find themselves with multiple insurance policies across several carriers, usually with different agents. This can easily lead to unnoticed gaps or overlaps in coverage, particularly if the family is not diligent about reviewing their policies and coverage levels at least every few years. In addition, this could make the claims process overly complex and time consuming in the event of a loss.
Working with an independent insurance agency that specializes in the high net worth market can expand carrier and coverage options, simplify the claims process, and help to uncover exposures. For example, it is a common misconception that homeowners insurance will cover all risks relating to a residence. However, this may not be the case since standard policies typically do not cover things such as collectibles or household staff.
It is important for high net worth families to evaluate their coverage needs in all of the following areas in order to prevent potential gaps or oversights:
Property – Provides protection against damages to real and personal property, including loss for diminished value and loss of use. Property insurance can include homeowners, renters, flood, and/or earthquake coverage. Significant gaps in coverage may occur if you rent out your property, even occasionally.
Automobile – Provides protection against damages or theft of a vehicle. Coverage is available for a wide range of vehicle types. Expenses for injuries to yourself or others, as well as injuries or damages caused by an uninsured motorist, are also covered.
Umbrella – Also known as excess liability, this type of insurance provides coverage above the limits of homeowners, automobile and watercraft policies. The coverage level should be increased as wealth and earning power grow, and should be enough to cover the full value of the family’s assets.
Recreational Vehicle – Provides coverage for watercrafts, aircrafts, snowmobiles, jet skis, motor homes, travel trailers, etc.
Workers Compensation for Household Staff – Provides benefits for workers in the home, such as nannies, housekeepers, cooks, personal assistants, etc., as directed by the laws of the state of residence.
Directors & Officers – Provides protection for legal action against directors & officers of non-profits, businesses, or other organizations.
Specialized Product – Policies that provide protection for unique or unusual assets, hobbies, or lifestyles. This includes coverage for identity theft, private collections, kidnap & ransom, cyber liability, and so on.
Working in partnership with outside insurance specialists, a Freestone Client Advisor can assist you with a complimentary review of your existing policies to identify gaps, ensure appropriate coverage levels, and make recommendations based on your personal situation and needs.
Important Disclosures: Nothing in this article is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not mkaing any specific recommendations regarding any financial planning or tax strategy, and you should not make any financial planning or tax decisions based on the information in this article. The intention of this article is educational.This article is not a comprehensive or complete summary of considerations regarding its subject matter. Each individual is in a different situation and has different items to address, and the options in this article are not appropriate for everyone. Please consult your Freestone client advisor and a lawyer regarding options specific to your needs.