SeibertKeck: How the wealthy can prevent coverage gaps in their personal insurance

Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.

“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Kevin Franczkowski, a client advisor at SeibertKeck Insurance Agency, Inc.

Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.

Smart Business spoke with Franczkowski about where high net worth individuals need more or different types of insurance coverage.

What is the biggest area that high net worth individuals underinsure?

The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.

If the individual sits on non-profit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a non-profit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.

For example: A high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.

Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For example: An individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business, and earnings will all be at risk to cover this situation.

What problems do you see with homeowner’s policies?

Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an Inland Marine Policy.

Making sure the values on your homeowner’s policy are correct, and ensuring you use insurance products that are designed for higher risk, will be extremely important in the event of a claim.

How should household help be covered?

If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home. If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent can assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.

A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured.

Kevin Franczkowski is a client advisor at SeibertKeck Insurance Agency, Inc. Reach him at (330) 867-3140 or [email protected].

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