When you work hard and build up significant assets, what you own and how you live creates different or more complex risks. Whether you own multiple homes, a high-value art collection, or luxury vehicles, or you engage in hobbies that are expensive or pose potential dangers, protecting yourself and what you’ve built is important, but complicated.
In our experience advising individuals and families with high net worth, the specialists at B. F. Saul Insurance hear common questions about how to ensure you’re covered for the most likely risks you’ll face. Here are the most frequently asked questions (FAQs) we encounter.
Q: How much umbrella liability insurance coverage do I need?
A: More than you probably think. Our litigious society makes it more likely you’ll be the target of a liability lawsuit—and more likely the settlement or jury award will be eye-popping.
An umbrella liability policy provides added protection on top of the liability limits of your auto and homeowner’s policies (which are not nearly enough to protect you in the event of a claim), along with defense counsel resources. There’s no standard calculation for determining the right policy limit for umbrella liability insurance. Your insurance advisor will evaluate your risk exposure based on factors like your net worth, lifestyle, family situation, public profile, and future earnings potential. Then they’ll work with you to come up with a policy limit you feel is adequate, likely totaling several million dollars. In fact, many insurance experts now say, “$5 million is the new $1 million” when it comes to umbrella liability coverage.
Q: Why is my home insured for a value that’s different from its current market value?
A: With real estate prices soaring, you might be tempted to look at Zillow periodically to see how much your primary or vacation home is worth. But your property’s market value isn’t necessarily the same value it should be insured for.
High-net-worth families and individuals should choose a homeowner’s policy that provides guaranteed replacement cost: what it would cost to replace your home in the event of a total loss at today’s construction prices. With inflation driving up labor and material costs, that figure will be much higher than it was just a couple of years ago. Without guaranteed replacement cost coverage, you could end up underinsured and left paying significant out-of-pocket costs, especially if your home has high-end finishes or hard-to-replace features like exotic hardwood floors or a custom wine cellar.
Q: Does our homeowner’s policy cover us if we host events at our home, like a charity fundraiser or our niece’s wedding?
A: Entertaining large groups at your home is a recipe for liability risk, and your homeowner’s policy only provides limited liability coverage (often just $500,000 per incident). But you might not think about that when you agree to open your home for the local historic house tour or decide that your beach house would be the perfect setting for a family wedding, for example. This is another reason why families and individuals with significant assets need sufficient umbrella liability coverage.
Q: We don’t own a property near a beach or lake, so we don’t need flood insurance – right?
A: If you own a home anywhere it rains, then you need flood insurance! All kidding aside, the frequency of catastrophic weather events is causing homes to flood in areas that have never been considered a flood risk. All it takes to flood your home is an excessive amount of rain in a short period, but most homeowner’s policies specifically exclude flooding. It’s always our recommendation that you purchase flood insurance for any home, no matter where it’s located.
Q: We have good coverage for our homes, autos, and valuables, and we have an umbrella liability policy. What other coverages should we be thinking about?
A: Four other coverage types are especially important for high-net-worth families and individuals to consider.
- Worker’s compensation insurance. If you employ a domestic worker, such as a nanny or housekeeper, and they’re injured while on the job, worker’s compensation insurance will cover their resulting medical bills. In some states, like Maryland, the earnings threshold for requiring worker’s compensation for a domestic worker is quite low. You can face costly fines if you exceed the threshold but don’t carry this insurance.
- Employment practices liability insurance. You probably wouldn’t expect a domestic worker to file a wrongful termination, harassment, or discrimination lawsuit against you. But the very person you’ve come to view as family is likely to go after you legally if it suits their purposes, because their intimate knowledge of your situation tells them you have deep pockets. Employment practices liability insurance will protect you if that happens.
- Cybersecurity insurance. People with substantial assets make especially lucrative targets for cybercriminals. Most carriers that provide homeowner’s insurance for high-value homes offer cybercrime coverage as an add-on; if not, you can purchase a stand-alone policy. Unlike the limited cyber coverage that a standard homeowner’s policy provides, a cybersecurity add-on or separate policy will insure you against more types of incidents, at higher limits.
- Travel insurance. If you travel frequently, especially out of the country, it’s worth considering travel insurance. This coverage will provide some degree of reimbursement in the event you fall ill during the trip, need to cancel at the last minute, or your luggage is lost in transit, for example. Just keep in mind that travel insurance doesn’t typically provide coverage for COVID-related incidents.
Q: How can I reduce my homeowner’s insurance premiums?
A: At a time when nearly everything costs more than it did only a year ago, everyone is looking to reduce their insurance premiums. Unfortunately, rates are rising for many coverage lines because high material and labor costs, frequent catastrophic weather events, and skyrocketing settlements and awards are driving up claims costs.
Despite these pressures, there are two steps you can take to reduce the homeowner’s insurance premiums on your primary or secondary home.
- Reduce your risk. Most carriers offer discounts or credits if you take measures to reduce your risk of a loss, like installing a leak detection system, an alarm with central station monitoring, or a backup generator.
- Carry a higher deductible. All other things being equal, raising your deductible will reduce your premium. And while you might think a higher deductible equates to higher out-of-pocket costs, the opposite is more likely. That’s because, if you file too many total claims in a short timeframe, the carrier will raise your premiums significantly or could decide not to renew your policy. For example, having two water damage claims in a five-year period is considered the equivalent of having a DUI on your driving record. It’s best to view your homeowner’s policy as coverage against catastrophic loss, keeping the deductible high and paying for smaller incidents out of pocket. For people who own high-value homes, deductibles of $5,000 are often the minimum, with many opting to self-insure tens of thousands of dollars.
Q: We have young drivers on our auto policy. Should they take a policy in their own name to protect our assets from a lawsuit?
A: Whether you have high school teens at home or older children at college, you might be concerned about their higher risk of an auto accident and how it could jeopardize your assets. But even if they have no money in their name currently, if they cause a car crash that results in serious injuries or fatalities and they’re hit with a large judgement, they could find their future earnings garnished for many years. While this is a personal decision, some families opt to keep their children on their policy and protect everyone by adding higher umbrella insurance limits.
Q: We occasionally rent our second home on Airbnb or VRBO. Does a standard homeowner’s policy provide enough coverage?
A: Even if you only rent your home periodically, you need different coverage than if it’s strictly a personal residence. It’s important to tell your broker exactly how you’re using a secondary home, so they can identify the right type of property coverage. And of course, renting out your home opens you to greater liability risk, so it’s important to increase your umbrella policy limits and ensure the policy covers the home.
Q: Does my homeowner’s policy cover valuables like expensive handbags or jewelry?
A: Not necessarily. Most homeowner’s policies include relatively low limits for valuables, so it’s likely the value of those items far exceeds the coverage amount. Whether you own expensive jewelry, silver, art, sports memorabilia, or other valuables, or you collect rare wines, it’s best to review your current policy and determine how to best enhance your coverage. Many carriers offer the option to itemize each piece and specify its value (what’s known as a scheduled approach) or buy one total coverage amount for valuables without itemizing them (a blanket approach).
Q: We have multiple policies that all renew at different times of the year. How can we reduce the number of policy invoices?
A: Most insurance companies allow you to choose a common effective date across multiple insurance policies, so you don’t have renewals happening at different points in the year. Then they can consolidate all those policy invoices onto a single bill account to streamline the process of paying your premiums.
Shannon Smithson is an Account Manager on the Personal Lines team at B. F. Saul Insurance, with over 20 years of experience in the insurance industry on both the carrier side and agency side. Her key responsibilities include researching the current market and determining the most suitable insurance solutions for clients. Her expertise lies in understanding her clients’ needs and matching them with the appropriate coverage options.