The Situation
As you build wealth, your asset protection plan needs to do more than grow. It needs to evolve. And you shouldn’t expect a mainstream, one-company insurance agent to tell you when your need for coverage transcends what he or she offers.
That’s the time to talk to someone new.
What You Should Know
“There are so many insurance agents out there quoting just for price to try to get business, that consultative questions are left out,” said Ken Beaman, CIC, a private risk advisor and vice president with the Houston office of Willis Towers Watson.
The result is that many families, particularly affluent ones, are left unprotected.
What You Should Do
“The liability and the homeowner’s insurance is what we often find is the most underinsured,” Ken said. “When clients have accumulated wealth and outgrown their insurance carriers, it’s often because many mainstream companies don’t offer more than $5 million liability. If a client’s net worth is significantly more than that, we certainly recommend more coverage.”
And liability coverage is about more than, say, someone falling down the stairs in your home.
“It’s much broader than most realize,” Ken said.
For instance, say your car is at fault in a fatal accident. You will likely be sued for millions. If your auto policy has $500,000 in liability coverage, a personal liability policy would be crucial for protecting you beyond that amount. It could also protect you from liability in unexpected things, from hunting accidents to teenagers getting in a fight to slander and defamation of character suits.
“Personal liability coverage is a good value and probably the most important insurance policy you can buy, because it transfers the risk from your pocket to an insurance company,” Ken said.
He added that coverage up to your net worth is a good idea, although beyond $20 million it depends increasingly on risk tolerance and lifestyle factors. Does your family own a lake house, a swimming pool, or have a high profile in the community?
“The more boats and four-wheelers and toys you have, the bigger your risk, and the more you need a higher-limit umbrella just because you’re a bigger target,” Ken added.
Ken also handles specialized types of coverage, including:
- Airplanes
- Classic Autos
- Farm and Ranch
- Fine Art
- Watercraft
- Workers compensation for domestic staff
- Kidnap-and-ransom insurance
Insurance should be a part of your family’s legacy planning as well. According to Ken, estate tax strategies often title tangible properties to a family trust, LLC or family limited partnership (FLP). If so, it’s important that those entities be named beneficiaries on relevant insurance policies. Many overlook this, in which case a claim might be denied, delayed or paid to the individual, which defeats the whole purpose of the tax strategy.
