by
Badgley Phelps
| Apr 05, 2019
Insurance risks for high net worth (HNW) individuals are unique and complex, not just because the individuals are wealthy but because their lifestyles and circumstances are diverse. For this reason, HNW individuals are better served by working with property and casualty insurance brokers and agents who specifically serve the high net worth market.
Seven situations that complicate insurance for high net worth individuals
There are several situations that make insurance for HNW individuals more complex than for others.
1. Owning properties in different states or overseas. Local laws, languages and insurance contracts can all be more complicated from afar. And, it’s important to have surplus line insurance or catastrophe insurance for properties located in catastrophic-prone areas. This applies to dwellings such as coastal properties in areas prone to hurricanes, flooding, erosion or landslides, or properties next to wilderness areas vulnerable to wildfires.
2. Owning a high-value or historic home that requires specialized coverage. There are extra considerations with such homes; for example, with historic homes that require repairs from experienced restoration craftsmen.
3. Owning a watercraft, aircraft, livestock or horses. Interestingly, most standard farm insurance policies don’t include livestock collision coverage.
4. Owning jewelry, fine art, wine, guns or an antique car collection. Often, people make the mistake of assuming their homeowners’ insurance policy covers fine art and other collections. It may not. It’s important that your insurance coverage has a rider for valuables and collectibles that lists collectibles by item or by blanket coverage—as well as an organized inventory system to track the collection and its fluctuating values.
5. Owning a business. Beyond the typical insurances required with business ownership, HNW individuals may have more of a need for professional or personal cyber liability insurance, which covers financial losses from hacked devices, data breaches and cyber extortion.
6. Employing domestic workers or hired help. It’s important to note the specific requirements in your state for workers compensation and disability insurance for workers you employ, as they vary. In some states, it’s a statutory requirement.
7. Serving on the boards of nonprofit organizations. Directors and officers liability insurance can help protect board members from lawsuits against the organization and its members, and general and professional liability insurance through the same insurer can help avoid finger pointing and risk of disclaimed coverage.
The need for high net worth specialty insurance
HNW individuals are better served by working with property and casualty insurance brokers and agents who are intimately familiar with the HNW market and its unique challenges and opportunities. They can help you decide if you need excess liability coverage when standard liability isn’t enough. These specialists take a holistic approach to addressing individual circumstances versus the more product-oriented, transactional approach. It’s important to contract with brokers and agents who are able to review your entire insurance portfolio and facilitate referrals to specialist brokers for complimentary reviews.
Tips for selecting an insurer/insurance policy
Following are tips to follow when seeking a new insurer and/or insurance policy:
1. Solicit feedback. Chat with your financial planner, friends and family regarding their experience with the insurer. It’s important to select an insurer that will respond to your needs and has a reputation for handling claims fairly and efficiently.
2. Conduct a health check. Don’t forget to check the financial health of the insurer with independent rating agencies.
3. Develop a relationship. Your new agent should be willing to carefully go over your policy with you so that you understand what’s in it: what’s covered and what’s not. A common and costly mistake individuals make is not knowing what’s in their policy until it’s too late.
4. Go team! Ask if there’s a team of client service representatives assigned to you that will provide ongoing support with handling claims and annual reviews.
5. Simplify. Consider consolidating policies under one agent and provider.This makes things simpler when filing claims and allows for better coordination of policies to avoid coverage gaps that can occur when policies are bought through multiple agents. Finally, excess liability policies work better when written by the insurer of the underlying policies.
6. Keep quality in mind. Choose insurance based on quality and the amount of coverage rather than price. Basing a decision on price often results in underinsurance.
7. Consider raising your deductibles. You can use savings from higher deductibles to pay the cost of higher coverage amounts. One measure is the five-year payback period rule:increase the deductible to greater than five times the annual premium savings. Or ask yourself, “At what cost point would I submit a claim to the insurer?”
Seattle specific considerations
If you live in the Seattle area, there are a few other things to think about when considering a new insurance provider or plan. First, seek earthquake insurance quotes. Don’t assume that it is overpriced or that you have the ability to self-insure: Make an educated decision. Also consider the possibility of flooding or a sewer backup, which can be commonplace in this area. You should obtain umbrella liability coverage that matches your risk and asset level.
If you’re a current client and you would like a referral to a Badgley Phelps trusted insurer specializing in high net worth individuals, contact us.
