Once you’ve built up a large portfolio of assets, it’s important that you take the right steps to protect it from risk. For high-net-worth individuals and families, that means going beyond the standard insurance policies you can purchase online and obtaining coverage that’s tailor-made for people with sizable assets—not just stocks and bonds, but homes, cars, watercraft, and other valuables.
It's easy for most of us to imagine a fire, flood, or theft happening. But owning significant assets opens you to other risks you might not think about, especially liability. Today’s litigious society makes liability lawsuits more common than most people realize, and high-net-worth individuals and families prove lucrative targets. Without the right coverage and proper policy limits, you could incur exorbitant out-of-pocket costs. And that happens all too often.
“High-net-worth individuals and families don’t always recognize new or ongoing threats to their financial picture and take the proper steps to protect against them, especially when those threats don’t seem urgent,” notes David Tovey, a managing partner with HF3 Wealth Partners.
While people with sizable assets can face a wide range of risks unique to their lifestyles—from employing domestic help to owning rare or high-value cars and other collectibles—the following three risks are most common among high-net-worth clients.
Whether you use it exclusively for your own enjoyment or rent it to generate income, a second home adds risk. And while you know you need sufficient property insurance, you might not realize how much those policies vary.
For example, many insurers don’t offer guaranteed replacement cost coverage on secondary homes; instead, they insure the property up to a defined value. But in these inflationary times, with the cost of construction labor and materials at an all-time high, there is likely to be a significant gap between the insured value and the cost to repair or replace your home after a loss—leaving you to pay the difference. By contrast, guaranteed replacement cost coverage assures the carrier will pay what it costs to repair or replace your home, even if you have expensive features and finishes like exotic hardwood floors or a custom wine cellar.
Leaving your secondary home vacant for long periods poses additional risks that a standard property policy might not cover. If a pipe bursts or a sewer line backs up, but you don’t discover the problem until weeks or months later, the damage can be much more significant. Standard homeowner’s policies typically limit coverage for incidents like these, but a policy designed for a high-value secondary home will provide higher limits and more favorable coverage.
Renting your secondary home, even just seasonally, also presents risk implications you might not be aware of. Some standard policies don’t cover claims for incidents that happen while your home is occupied by a renter, or they assess a premium surcharge if you rent your home through a service like VRBO.
When you buy auto insurance, you probably assume you’re sufficiently covered if you cause an accident. But a crash that results in a fatality or severe injuries can trigger a lawsuit, and most auto policies have relatively low liability limits. If you have significant assets or you’re a high earner with many working years ahead of you, and the only auto liability protection you have is your auto policy, you could be left paying most of the settlement or award amount yourself.
There are countless cases of serious crashes resulting in multi-million-dollar settlements or awards, and many are not the result of reckless behavior like drunk driving. They involve drivers who hit a pedestrian who unexpectedly darted into the road, or swerved to avoid debris in the road and lost control of the car, or were temporarily blinded by sun glare and didn’t see a pedestrian crossing the street. If the other party’s livelihood is jeopardized as a result of their injuries, the settlement or jury award will be even higher. Besides having your liquid assets seized, you could end up with liens on your homes and even your future earnings.
That’s why an umbrella liability policy is a must for high-net-worth individuals and families. As the name implies, 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. There is no rule of thumb for determining how much umbrella insurance to purchase, so it’s best to talk with an experienced broker to ensure you’re adequately covered. (This blog delves more into the factors that influence the amount of umbrella coverage a successful family might need.)
With cybercriminals getting increasingly creative and persistent, there is no sign of these incidents slowing down. And while anyone can be the target of spoofing, phishing, hacking, ransomware, or cyber extortion, your high net worth will make you a lucrative target, whether or not you have a high-profile job.
If your bank is hacked and funds are stolen from your account, the institution is liable for the losses. But let’s say a cybercriminal intercepts your email, discovers you’re in the process of purchasing a boat, poses as the sales rep, and sends you a link for making the down payment. If you willingly use that link to send money to the fraudster, you’re on the hook for the lost funds.
What many people don’t realize is that cybercrime coverage can be added to homeowner’s insurance policies that are designed for high-net-worth individuals and families or purchased on a stand-alone basis. A standard homeowner’s policy might offer very limited coverage and policy limits specifically for identity theft, but cybercrime coverage insures against a much wider range of cybercrime incidents, at much higher limits.
While the proper cybercrime coverage is critical, it's equally important to invest in solutions for protecting your information while going about your day-to-day activities online.
“The days of downloading an antivirus program to the computer and calling it a day are over,” Tovey says, noting that most of us download onto multiple devices, share data across platforms, and leave an invisible trail that’s easy for cybercriminals to follow. “Individual cybersecurity, password managers, and digital vaults are the virtual equivalents of a home security system and smoke alarm and should be treated as such,” he advises.
The higher your net worth, the more critical it is to ensure your assets are protected from the risks you’re most likely to face. That’s where the advisors at B. F. Saul Insurance can make a difference.
Our team has decades of experience helping high-net-worth individuals and families protect the assets they’ve worked hard to accumulate. We have a deep understanding of the risks unique to people with sizable assets, and our proactive approach means we’re always monitoring the market and evaluating how your risks might be evolving.
If you have significant assets that need protection, contact B. F. Saul Insurance to learn how we can help.