7 Major Pitfalls of High Net Worth Insurance Programs
Imagine designing a program of insurance that covers multiple homes in different states and countries, incorporates estate planning strategies, covers automobiles in multiple states, valuable global collections and personal liability lawsuits that may arise.
Insurance programs designed for individuals with these needs are fraught with pitfalls that could result in financial loss if the insurance is not structured properly. Seven of these potential pitfalls are described below.
Placing homes into LLCs, qualified personal residence trusts and other entities for estate planning purposes. Using trusts and LLCs to protect assets or implement tax strategies are sound estate planning tools, but these entities need to be added to the home insurance policy to avoid complications at the time of a claim.
No umbrella/excess liability coverage. What is the one thing that can wipe out wealth that no one can control? A large liability lawsuit caused by an injury to another person at the home, on the road or elsewhere for which the insured is liable. Most insurance companies who specialize in protecting wealthy individuals can offer up to $50 million in coverage. The average cost of a $10 million policy is about $1,250.
Lack of protection against the risks of employing domestic staff. Lawsuits against employers of domestic employees are becoming more prevalent, and wealthy individuals are an attractive target. In addition to employment practices exposures like harassment, wrongful termination and age discrimination, employers of domestic staff also need to abide by any legal requirements for workers’ compensation and other statutory coverages in the state/country of employment.
Overlooking changes in the occupancy of a home. A home undergoing a major renovation, an owner-occupied home that becomes a rental property and a home that remains for sale after the owner moves out all undergo changes in occupancy, which contribute to an increased risk of loss. Insurance coverage can be limited, declined or altered from what is expected if one of these situations exists at the time of loss.
Inadequate coverage for risks on the road. Auto insurance is complicated and even more complex for individuals with cars in different states. For example, some states limit the ability to sue for damages, and others offer discounts when health insurance covers auto-related injuries. Many people are so focused on getting a low price that they overlook coverage needed to protect themselves and their families.
Misunderstanding international property coverage differences. Protecting from the risk of a financial loss extends beyond the borders of the insured’s home country. It is important to make sure coverage obtained in a foreign country is on par with what the insured is accustomed to. This can be challenging due to differences in the insurance regulatory environment and insurance product availability.
Poor planning for catastrophe coverage. Some wealthy individuals own luxury properties located on islands, near the coast, in earthquake prone regions and other areas. Understanding the exposure to catastrophes like flooding, hurricanes and earthquakes is critical to making informed decisions about how to protect homes from these risks.