High Net Worth Individuals: Being Underinsured Can Be A Costly Mistake
High net worth individuals and families often are unaware that their risk profiles
require them to reconsider their insurance coverage.Risk management is very important because having more possessions at higher values means having different needs.One area to look at carefully isliability coverage because many private clients have exposures to things such as libel suits or household employee issues. It would be prudent to take an initial assessment of ones overall needs in order to ensure there are no issues with gaps in coverage.
Additionally, many affluent consumers take risk in assuming that the liability coverage in their homeowners and auto policies will protect them if someone is injured on their property or in an auto accident they cause. This might be accurate, but only up to a point. The liability coverage limits in these policies will usually pay up to $300,000 and rarely more than $500,000. These amounts may be sufficient in most cases, but multi-million-dollar awards and settlements are not uncommon.
Moreover, in todays economic and political environment, affluent consumers are more likely than usual to be targets of multi-million-dollar lawsuits. Their wealth represents the proverbial deep pockets that lawyers are trained to pursue.
In many states, being found only 1% responsible for an accident, a person can be held liable for 100% of the damages to the injured parties. Without sufficient protection, this could mean being forced to sacrifice a home, savings and investments, and even future income stream from employment to pay damages in excess of present liability coverage.
More coverage means better protection against lawsuits
Umbrella liability coverage protects high net worth homeowners and their assets in the case of a financially significant lawsuit. It steps in when the liability coverage in the homeowners or auto policy has been exhausted. Coverage can be purchased through insurance carriers that specialize in serving affluent consumers, usually starting at $1 million, and going as high as $100 million.
If there is already an umbrella policy in place, it is important to have the right amount of coverage. Insurance should be adequate to protect a familys fortune against things like personal injury lawsuits. To be fully protected, when setting a coverage limit, consider:
equity in real estate holdings, the value of personal possessions, savings and investments, and future income stream from employment
Surprisingly, the cost per million dollars in umbrealla coverage can amount to only a few hundred dollars. Taking a higher deductible and bearing more responsibility at the low end of risk can often offset this cost.
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