Are You Overpaying for High-Net-Worth Insurance But Under-Protected?

When you buy insurance, you assume you’re protected in the event something goes wrong. But what if you’re not really covered for the risks you’re most likely to face…or you’re paying more for the coverage than you should? 

For high-net-worth individuals and families, both scenarios are real possibilities. 

People with significant assets have different exposures than most Americans. That makes it more important and more challenging to obtain the coverage you need and avoid paying more than you should.

Different Lifestyle = Different Risks

Many successful families buy personal insurance through mass-market insurance companies that don’t specialize in working with customers who have significant assets or lifestyles that are expensive or high-risk.  

For example, if you own a vacation home or boat, you collect antique cars or fine art, you employ workers in your home, or your home is often used for entertaining, you need different coverage than you can purchase by answering a few questions online and clicking “submit.” Factors like these create unique exposures, requiring different insurance than you might be accustomed to buying.  

And without the right insurance, your assets and your livelihood could be at risk.

When the Unthinkable Happens

The recent lawsuit against Gwyneth Paltrow is a prime example of how high net worth can equate to high risk. The actress was sued by a man who she collided with while skiing; he claimed he sustained life-changing injuries and sought $3 million in damages. Though the jury found Paltrow to be not at fault, the case underscores the fact that successful individuals are often lawsuit targets—not just celebrities, but anyone perceived to have deep pockets. 

Without the right insurance, you could be at risk for reasons you probably don’t think about every day. Consider these real-world scenarios:

• The same nanny has been taking care of your children for a decade. She falls in your home and suffers a major injury requiring months of physical therapy. You don’t have worker’s compensation insurance, but you’re prepared to pay her medical bills out of pocket. Then she sues you for $2 million, claiming she can never work again.
• Your college-aged son brings a group of friends to your beach house. One of the guests dives into the shallow end of the pool and suffers a spinal cord injury that leaves him unable to walk. He was a top-ranked college quarterback who hoped to be drafted by the NFL. The family sues you for $8 million to cover his lost future earnings.
• You serve on the board of a local nonprofit that is sued by a third-party vendor. Since the organization’s D&O coverage isn’t sufficient to cover the full settlement, the plaintiff goes after each board member personally for the difference.

Must-Have High-Net-Worth Coverages

To ensure you have the right protection against the type of risks you’re most likely to face, high-net-worth individuals and families should consider coverages like these.

• Umbrella liability insurance. Liability is one of the greatest exposures a successful individual or family faces—especially since a plaintiff can go after not just your current assets, but your future earnings as well. That makes umbrella liability coverage a must. An umbrella policy sits on top of your auto and homeowner’s policies to provide additional coverage beyond the liability limits those two policies provide. (This blog explains the factors that influence the amount of umbrella coverage a successful family might need.)
• Worker’s compensation insurance. While you might not view your home as a workplace, if you employ a nanny, housekeeper, or other domestic worker, then you need worker’s compensation coverage. This insurance covers a domestic employee’s medical bills if they’re injured on the job.
• Personal D&O insurance. In the earlier example in which the nonprofit organization’s D&O insurance was exhausted by a lawsuit settlement, a personal D&O policy would have protected at least some of the board members’ personal assets from exposure.  
• High-value property insurance. A standard homeowner’s insurance policy may not be sufficient if your home is valued at more than $1 million or you have many custom, hard-to-replace features. The same holds true if you have a fine art or wine collection or your garage houses three collectible cars. And if you regularly buy and sell tangible assets, and don’t keep your insurance advisor or insurer informed of those changes, even if you have the right policy in place, you could be underinsured.
• Cybersecurity insurance. The more assets you have, the better target you become for cybercriminals. Money wire fraud is especially common risk people with significant assets. For example, if a criminal discovers you’re in the process of buying a vacation home, they can spoof your real estate broker or lender and get you to wire your deposit money to them. Cybercriminals also target high-net-worth individuals with ransomware attacks or attempt to extort money by claiming to be stalking your children or other family members. Insurance companies that specialize in covering affluent customers offer cyber liability insurance that can protect against risks like these.

Getting the Right Coverage, Without Overpaying

Ensuring you’re adequately protected is critical; but it’s equally important to avoid overpaying for essential coverage. 

Independent insurance advisors like B. F. Saul Insurance work closely with insurers that provide various coverages designed for the high-net-worth market, so we can often package several policies with the same insurer, obtaining a multi-policy discount. We also consult with you to assess your risk tolerance and determine whether you’re comfortable taking a higher deductible to reduce the premium. Since it can be more costly in the long run to submit many small claims (because the insurance company will raise your rates), a higher deductible is often less expensive, especially at a time of rising rates. 

Our team can also advise you on relatively easy ways to reduce both your exposure and your premium. For example, adding a more robust home alarm system with central monitoring or a low-temperature or water leak detection system that protects against water damage can provide peace of mind while encouraging insurance underwriters to offer a more favorable rate. Some insurers are even requiring these features for secondary homes that are vacant for long periods.  

Finally, B. F. Saul Insurance advisors can ensure you have the right coverage at the right limits to reduce your out-of-pocket costs in the event of a claim. For example, in today’s high-inflation environment, your home could be insured for less than the cost to replace it. And if you purchase a luxury vehicle, you’ll want auto insurance that compensates you for an agreed value, not cash value (a coverage that’s not available with most standard auto policies).   

Trust B. F. Saul Insurance to help you protect the assets you’ve worked hard to accumulate, without overpaying for insurance. Contact us today to learn how we can help!