Three common mistakes high net worth families make with their coverage
At Kelly Klee, we have advised thousands of high net worth families, and while each has unique needs, we see familiar themes across many of our clients’ accounts. Here are the three common errors we’ve come across when advising clients that are switching from a standard market carrier
1. Their deductibles are too low
Many high net worth families with standard market homeowners and auto insurance policies carry deductibles of $1000 or even less. They pay a substantial amount in premiums for these low deductibles. Ironically, when they have a minor fend bender, many won’t file a claim because they’re worried (and rightly so) about insurance rates going up.
If they have the means to pay for simple repairs out-of-pocket, the amount they pay to maintain a low deductible is better spent elsewhere. High net worth families have the means to self-insure and for smaller losses, and the savings could be significant. Higher deductibles also encourage fewer claims, thus keeping premiums lower and reserving claims filing for more significant losses where they are really needed
2. They don’t have enough umbrella coverage
The coverage limits for homeowners and auto policies are rarely more than $500,000. In our litigious society, this could be the single largest uncovered exposure for families that have significant assets. Jury awards and settlements, particularly for auto accidents where someone is injured, often reach into the tens of millions of dollars.
To get to adequate coverage, we recommend including the following when setting a coverage limit: equity in real-estate holdings; the value of personal possessions, savings and investments; and future income streams.
Having umbrella coverage can even reduce the likelihood of going to court. Remember that settling a lawsuit is a negotiation, and by having sufficient liability protection the insurance company has room to negotiate and settle the suit without out-of-pocket expense for the insured. On the other hand, if an insured has many times more assets than they are insured for, it can be extremely difficult to negotiate a settlement within the policy limits.
3. They don’t have uninsured/underinsured liability protection
There are a shocking number of uninsured and underinsured drivers on the road. The latest estimate is that one in seven drivers nationally may not have insurance. In a handful of states, the ratio can reach one in four. These drivers account for a disproportionately high percentage of fatal accidents—20 percent. Should one of these drivers cause serious injury to one of your clients, the driver will not have the resources to pay for your client’s lost income, pain and suffering, co-pays and other costs not covered by regular health insurance.
The risk extends beyond the road, too. Homeowners under economic stress may be cutting back on coverage. If you or a family member sustained a severe injury at a neighbor’s home, the neighbor might not have enough liability coverage to pay for treatment and possible lifelong care.
Unlike standard-market carriers, private client insurers that specialize in covering high net worth families also offer uninsured/underinsured liability protections as an additional coverage on top of their umbrella policies. This coverage protects clients from exposure caused by parties that are liable but do not have the money to cover the full extent of damages. The coverage is significantly more extensive than traditional uninsured motorist/underinsured motorist (UM/UIM) coverage, as it may be extended to circumstances beyond auto accidents, applying to other third-party liability.