Store Infrequently Worn Jewelry In A Safe-Deposit Box
Wealthy families often have large collections of fine jewelry that are insured with a valuables policy since homeowner policies place strict limits on the amount of coverage for jewelry and other types of items. If expensive items are worn infrequently, it might make sense to store them in a bank safe deposit box instead of at home. The rate for insuring jewelry stores this way can be five to six times lower, and it can still be worn at the occasional gala. In exchange for this significantly reduced rate, most high-net-worth-market carriers only require that they be notified in advance when an item will be leaving the bank so they can adjust coverage.
Wealthy families should also be aware of the differences between valuables policies. Insurance carriers that specialize in serving high-net-worth clients typically include market value coverage, which provides up to 150% of the amount listed on the policy if the cost of replacing an item just prior to loss has increased. This creates a buffer against short-term increases in value. Policies from high-net-worth-market carriers also include a blanket coverage option for a group of items such as art, fine wine or crystals, eliminating the tedium of estimating the value for each item.
Bundle Policies With One Carrier
Savings opportunities advertised by auto insurance carriers may sound tempting, but spreading home, auto, boat and umbrella liability policies across different carriers can cause potential gaps in coverage. It can also eliminate package discounts of 10% or more. Families should choose an insurer that allows for the package discount to cover the most insurance policies possible, such as home, auto, valuables, umbrella liability and watercraft. The best solutions allow the policies to be written as a portfolio with common term dates and one consolidated bill, saving the client time and money.
Bundling can also make the claim process easier if an accident triggers coverage from multiple polices. For example, if an auto accident results in a serious injury requiring lifelong medical care, the cost of care could exceed the liability coverage in the auto policy and trigger coverage under the umbrella liability policy. If the auto policy is with one carrier and the umbrella policy is with another, the family will have to deal with two legal teams in an already stressful situation. Moreover, having the auto and umbrella policies with different carriers increases the potential for a gap in coverage. For instance, the auto liability coverage might stop at $300,000, but the umbrella coverage might not start until $500,000, leaving the client responsible for the $200,000 gap between the two amounts.
Examine The Need For Additional Liability Coverage
Inadequate protection against personal liability lawsuits is considered the most common deficiency in wealthy families’ insurance coverage. Jury verdict awards and settlements involving serious injuries due to an auto accident or swimming pool mishap can exceed $10 million. Yet a study commission by ACE found that 40% of families with a net worth of at least $5 million, not including their primary home, have less than $5 million in umbrella liability coverage, including 21% who have no coverage.
Umbrella liability coverage adds critical protection over and above the amounts provided by auto and home insurance policies, which rarely exceed $500,000. Without adequate umbrella coverage, high-net-worth families could be forced to give up their savings and investments, the equity in their homes and even a portion of future income to pay damages.
The safest route is for the family to purchase enough umbrella liability coverage to match its net worth and future income stream. The affordability of such coverage often surprises people. The first $1 million in coverage may cost a few hundred dollars, and the cost per million decreases at higher levels. In many cases, the savings from a higher deductible can more than pay for adequate levels of liability coverage.
It is important to recognize that not all umbrella liability policies are alike. Mass-market carriers may be unwilling to offer much more than $2 million or $3 million in umbrella liability coverage. Carriers that specialize in the high-net-worth market usually offer up to $100 million in coverage.
Moreover, policies from the high-net-worth carriers typically do not count legal defense costs as part of the liability coverage limit, and some even provide coverage for having a public relations firm protect the family’s reputation. They may also include optional coverage, such as uninsured/underinsured liability, employment practices liability for domestic staff and directors and officers liability for serving on the board of a local charity.
Get An Annual Insurance Checkup
Perhaps the most important step advisors can recommend to their clients is to regularly consult with their insurance agent or broker. Many families neglect to do so as they accumulate substantial assets and only find out they are overpaying to be underinsured when they suffer a significant loss. If the agent hasn’t called or sent a letter for an insurance review within the last three years, advise your clients to call him or her—or refer the client to a new agent who understands the complex risks that confront high-net-worth families. Any insurance agent who serves your clients should have a thorough risk review process and have access to at least one high-net-worth-market insurance company. Wealth advisors can best serve their clients if they have these referral relationships established in advance.
Personal property and casualty insurance is an often overlooked yet critical piece of every high-net-worth family’s financial picture. By using these six strategies, wealth advisors and their wealthy clients can better manage, and possibly reduce, insurance premiums while better protecting the wealth they have worked hard to build.
David Spencer is senior vice president at ACE Private Risk Services.