Insurance Coverage for Wealthy Individuals

By on July 25, 2018

Do you have a dog, swimming pool, trampoline, ATV, sailboat, nannies, vintage cars, fine artwork or a vacation home? Do you employ a number of contractors to perform home maintenance repairs and construction on your property, or hold special events requiring caterers and staff?

These fun luxuries and investments come with their own potential dangers and risks, and despite these dangers, most wealthy families lack right right type and right amount of property and liability insurance coverage, or a basic umbrella insurance policy for comprehensive protection. While no one is saying you have to live your life differently, you should protect your estate from costly, unforeseen events: dog bits, thefts, falls or accidents, frivolous lawsuits, liability for damages and more. If your current coverage falls short the courts could order your incomes, properties and holdings be garnished to cover the gaps.

Despite the financial, reputational and emotional repercussions of liability lawsuits for high net worth families, many wealthy people have little knowledge of the amount of insurance they require to mitigate the unique risks facing them. As a result, they operate from day to day heavily underinsured

Why do wealthy households have no or not enough umbrella liability insurance or employment practices liability coverage for the nanny? Typically it is either a failure to realize that a worst case scenario can happen to them or they do not think the risk is worth the added expense, and thus feel their current coverage is enough to address the exposure.

Umbrella Insurance

Umbrella insurance provides additional liability coverage once the liability coverage limits in your auto and homeowners insurance policies are exhausted, giving you extra liability coverage. The right umbrella amount depends on your net worth, geographic region, your profession, risk tolerance, and current insurance policy limits.

How Much Umbrella Insurance Do You Need?

Umbrella coverage is a critical component of a personal risk management plan because the liability coverage in home and auto policies rarely exceeds $500,000, yet 13 percent of personal injury disputes settle for $1 million in damages or more. While your net worth will have some bearing on the amount of umbrella insurance you need.

If your assets are valued at $1 million, a $1 million umbrella is not going to protect you from a $2 million legal judgment. It may still be worth a lawyers time to go after personal assets to cover the cost of damages, so it may be worth a few extra dollars in premium payments for additional coverage, equal the present value of your employment or investment income stream.

How Much Does Umbrella Insurance Cost?

The typical umbrella insurance policy will cost around $400 for $1 million in coverage, $500 for $2 million in coverage, $600 for $5 million in coverage and $1000 or more for $10 million in coverage and up. Policies from carriers specializing in high net worth clients often have added benefits, such as offering coverage limits up to $100 million, for covering legal defense costs and hiring a public relations firm protect the client’s reputation without using up the liability limit.
Just as with other insurance products, you can lower your premium costs by upping the deductible amount of the policy. By effectively choosing to finance a larger portion of risk yourself, insurance companies are usually willing to provide you with the (i.e. $2 million) policy you need at a more affordable price (i.e. $250).

Speak with a trusted insurance agent to extend the protection of your home or auto insurance policies to cover the real cost of accident and liability lawsuits.

Additional Insurance Protections

In recent years, more wealthy families are investing in tangible assets such as collectable cars, fine art, memorabilia and precious metals or gemstones, and not just for their aesthetic value. As an investors, you have the opportunity to reap financial and aesthetic benefits from these tangible assets, but they also come with their own unique risks.

With an average of 9 percent of a family’s wealth tied up in tangible assets, investors can take comfort in the fact that their investments are more than likely to be subject to price appreciation in the future. More value means you need more insurance coverage to protect against not only fire damage and theft, but with loss limits which cover the actual value of the asset, wherever it is being housed, now and in the future.

Proper Coverage for Special Assets and Scheduled Valuables

A homeowners policy’s loss limits typically fall far short of that range and don’t cover accidental damages, assets kept in multiple locations, or accidents which occur while the assets are in transit or shipping (during thich most fine art losses occur).

Work with a trusted insurance agent to set proper limits of coverage for your precious possessions and schedule valuable items on a separate policy or additional insurance rider for your homeowners policy. These policies can apply to a broad array of risks, including those excluded by homeowners policies, such as floods. And the most comprehensive policies are able to guard against price fluctuations by providing coverage for the market value of an item just before the time of loss up to 50 percent more than the value listed on the policy.

Other Insurance Coverages for Wealthy Individuals and Families

Protecting your estate goes beyond combining and extending your auto or homeowners insurance coverage. If you have a family to protect, key positions on charitable boards to manage and various staff – nannies or babysitters, pool cleaners, personal chefs, drivers, personal trainers, etc. – employed to support your lifestyle, you may need additional insurance to protect against the unique risks these responsibilities pose.

Employment Practice Liability Insurance

If you employ domestic staff: such as a nanny, housekeeper, personal chef, pool cleaners or a driver, you may be exposing yourself to potential lawsuits for personal injuries, harassment, wrongful termination, discrimination, and other wrongful employment practices issues. You may think your relationship with these individuals is on solid ground, but in difficult economic times, disgruntled current or terminated staff may be tempted to file a suit, even if it is frivolous, in the hopes of getting a quick settlement.

These types of suits are not covered by your homeowners insurance or their employer’s workers compensation policy; and even if they are, you could still be found liable expenses due to an accident on your property. Separate coverage may be required.

Directors & Officers Liability Insurance for Charitable Board Members

Many wealthy individuals, particularly retired wealthy individuals, contribute a significant amount of their time to charitable organizations. You may be the director of a charitable trust or sit on the board of your community organization and therefore

Review the insurance carried by the organization and any state or federal laws that might indemnify you of liability. Then consider adding directors & officers insurance to your program to extend liability limits up to the value of your assets.

Life Insurance

To save money, wealthy individuals and families tend to bundle their coverages under one insurer. Unfortunately, life insurance is typically a stand alone policy, because only certain carriers offer it. But make no mistake: Life insurance can save millions in estate taxes and protect your family from financial burdens when you pass away.

Permanent life insurance policies: whole life, variable whole life,  universal life and indexed life insurance offer comprehensive death benefits, paid to your family, and additional cash-value investments which allow you to keep up with the rate of inflation or serve as a resource for money to use as retirement income, college tuition, mortgage payments or whatever you wish.

Special Risk Exposures Require Specialized Knowledge to Fill Gaps in Coverage

It is our moral obligation to to fully compensate someone who has suffered as a result of our actions or under our responsibility, however, we can offset the cost of lawsuits and court settlements by building a complete financial safety net, supported by proper insurance coverage.

While trusts and other techniques can shield some assets from the court’s reach, prudence suggests wealthy individuals and families take out insurance coverage at least equal to their current net worth and present value of income streams. And take measures to manage risks and prevent loss with an updated inventory 
of property and scheduled valuables, evacuation and safety plans, background screening of domestic staff and contractors, emergency supplies and security systems.

In many cases, an experienced insurance agent and carrier will be happy to assist with these steps. When additional expertise is required, these professional often have special relationships and discounts with reputable firms and service providers to fully protect you and your assets.

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About Scott Ho

FSN insurance and retirement journalist - Planning for your retirement or understanding your insurance needs can be confusing and difficulty. Scott knows these tasks can seem daunting. He offers his experience to make choosing insurance coverage and planning for your golden years a successful endeavor. Connect with Scott at !

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