The Insurance Policies Every High Net Worth Individual Should Consider

February 14, 2020
By Bart Zandbergen CFP

High Net Worth Individuals (HNWI) often have higher risk exposure and more complex insurance requirements. HNWIs are sometimes more prone to legal action from those who seek to gain a profit from their wealth, or in some cases, even targeted because of their wealth.

Unfortunately, HNWIs are often underinsured, as many have obtained first-generation wealth, and their wealth has outgrown their policies. Investopedia states that even if they are insured, most don’t do the leg work to find out what a possession’s actual market value is, which can lead to being underinsured.

Let’s look at four insurance policies you should have, or consider, as a high net worth individual.

Homeowner’s insurance

For most high net worth individuals, your home is your most valuable asset and should be thoroughly covered by insurance. If you own more than one home, it’s advisable to have a different insurance policy for each home; laws and regulations that impact your home’s policy can vary by market.

What many homeowners don’t realize is that standard policies aren’t usually robust enough for a high-value home. Even policies that are referred to as “high value” policies are sometimes just a standard policy with riders attached to beef them up. This isn’t necessarily bad; it just might not be the most appropriate policy for a truly high-value home.

Many high-value homeowner’s insurance policies for the wealthy also cover valuables such as artwork and jewelry.

Life insurance

In many cases, high net worth individuals carry life insurance, not for the economic security of their family, but to pay estate taxes, endow a charity, or for a generational wealth transfer.

Estate taxes can definitely take a big chunk out of your assets, leaving less for your heirs when the time comes.

Historically, estate taxes are one of the primary reasons high net worth people have life insurance. Estate taxes can take a big chunk out of your assets, which would leave less to your heirs.

Now let’s address the issue of securing the economic future of your family, because while it may not be the primary driver for life insurance for HNWI’s, it can be crucial if you have a dependent family, including children and a nonworking spouse.

The answer is probably obvious; you’re a HNWI, and you have a high income. There’s a good chance your income could disappear upon your death, but your family’s living expenses won’t.

Umbrella insurance

In the simplest of terms, an umbrella policy takes up where your home and auto insurance leaves off. Affluent individuals often choose either an umbrella policy or a personal liability policy, which provides increased coverage of your assets, beyond what your homeowner’s and auto insurance policies cover.

Homeowner’s and auto policies often cap liability payouts at around $500,000. Any liabilities you have above that would come out of your pocket unless you have an umbrella policy.

  • Specialized personal umbrella policies can have limits as high as $100 million and are offered by a select group of companies. As a HNWI, you might consider an umbrella policy if you:
  • Have a swimming pool, personal watercraft, trampoline, etc.
  • Rent out your second home when you are not using it
  • Employ household staff, including nannies, a housekeeper, or a gardener
  • Hold charity functions or other types of business events at your home
  • Serve on a board of directors

Long-term care insurance

As a HNWI, you have the choice to self-insure, and in fact, many financial advisors would recommend keeping your money in investments. However, there a few things to keep in mind and consider. One concern that many have is the impact of a very long and costly extended care situation, which could be devastating to even those with substantial assets.

The other concern those with considerable net worth have is the tax consequences when their own assets must be used to pay for their long-term care. Whether wealthy or not, every family will face difficult challenges when a parent suffers a long-term care event. A long-term care policy will reduce the stress and burden on loved ones, and some HNW individuals consider that a significant benefit.

When it comes to insurance, there are a lot of options, and the decision on what type of insurance you should carry is a highly personalized endeavor. Along with your insurance agent, you should work with your financial advisor to make sure you are getting maximum benefits out of your individual policies.

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The Zandbergen Group is a DBA of Axxcess Wealth Management, LLC a Registered Investment Advisor with the SEC. Bart A. Zandbergen, CA Insurance License #OA96242. Letitia S. Berbaum, CA Insurance License #OH19537. Zandbergen Group, LLC is a DBA of Axxcess Wealth Management, LLC (“Axxcess”), a registered investment advisor. Advisory services are only offered to clients or prospective clients where Axxcess and its representatives are properly licensed or exempt from licensure.