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Ultra-high net worth clients are often more focused on asset preservation than accumulation. Yet while they commonly own multiple homes, automobiles, watercrafts, heirloom jewelry and other expensive collections like art and wine—all of which greatly increase their risk—few have the specialized coverage needed to adequately mitigate that risk. This disconnect puts into jeopardy the very lifestyle they are looking to protect. In fact, a recent survey of families with investable assets of over $5 million revealed that 40% carried less than $5 million in liability coverage, and 21% had none at all.1 As a result, many affluent families are unwittingly exposed to risks that could threaten their existing wealth, their future earnings and even the legacy they plan to leave for future generations.
One way to add accretive value and differentiate yourself amongst other advisors is by identifying a solution that effectively covers the elements that make your clients more vulnerable to loss.
A rational assessment of liability exposure
Personal Excess Liability coverage is a critical tool in protecting your clients’ wealth. At its core, this coverage steps in when the limits of a homeowners, automobile or watercraft insurance policy have been exhausted. You can help your clients eliminate potential coverage gaps by encouraging them to select solutions that offer pricing structures and limits that better align with their individual risk factors and lifestyles. For example, a personal excess liability policy based on the number of drivers in a household is more cost effective than the more traditional method of simply tallying the number of cars in a driveway. While clients may have a garage filled with their luxury car collection, they can still only drive one at a time. For those who don’t drive themselves, personal excess liability can even help protect the actions of a hired driver.
Working exclusively with high net worth individuals and families, we have seen firsthand the value of Personal Excess Liability coverage and compiled some of our key learnings below. We also created a tool to help you and your clients understand their coverage needs and the costs for various limits so they can make a more informed decision.
Not-for-Profit Directors and Officer Liability Coverage
While most non-profit organizations generally have some liability protection, those serving in governance roles can sometimes be held personally liable for the actions of organizations such as accusations of wrongful termination or breach of fiduciary duties. Additional coverage for these types of risks enables ultra-high net worth individuals to continually give back while also protecting their assets.
Domestic Employment Practice Liability Coverage
The employment of domestic staff such as drivers, housekeepers, personal assistants, gardeners or childcare providers is not typically covered in standard insurance policies. Personal excess liability coverage can help protect against wrongful employment claims, harassment suits, unfair-dismissal allegations and other potential liabilities. The most beneficial policies may also include coverage for crisis management services to help preserve reputations and cover legal defense costs without reducing the amount available to pay damages.
Uninsured Motorist and Uninsured Personal Liability Coverage
Uninsured individuals pose a significant financial threat to the wealth of high net worth families. For example, one of our members was hit into oncoming traffic by a drunk driver and struck by another vehicle. The drunk driver did not have insurance, and our members’ injuries and damages exceeded $1 million. Thankfully, the family’s personal excess liability policy covered uninsured motorists.
Measuring Risk for Excess Liability Coverage Pricing
While these are just a few examples, the overarching impact of an individual’s lifestyle on his or her risk profile is one of the most important factors for a wealth advisor to understand when reviewing personal excess liability policies. Individuals, including the affluent, typically select policy limits based solely on cost, rather than one that adequately reflects their, or even their family’s, potential risk.
By looking at a few key risk factors—such as driving history, number and size of their homes, and whether or not they employ domestic staff—insurers can offer customized policies with a range of limit options, supporting wealth advisors’ efforts to protect their clients’ wealth.
1Source: Forbes Magazine