One of the often overlooked aspects of a thorough financial plan can be among the most valuable when it comes to planning for high-net- worth and ultra-HNW individuals: insurance.
There are many uses for insurance as it relates to tax-efficient retirement strategies and wealth preservation. For example, life and long-term care insurance are often used in tax and estate planning.
Traditional property and casualty insurance needs of affluent individuals, wealthy families, and business owners are evolving. Don’t let yourself become complacent: keep your eyes on the news and review your insurance needs regularly.
Protecting Your Homes and Valuables
Your assets, estates and businesses can be far more complex than those of the typical policyholder.
Most commercial carriers limit the amount you can insure. They work with appraisers who may not have equal-value replacement experience with high-end assets. And they may exclude many of the specialty items you have acquired, such as grand pianos or fine art.
Consider homes beyond your primary residence. Vacation properties are likely to be unoccupied for portions of the year, leaving them vulnerable to damage or vandalism. Rental properties may be part of your real estate portfolio and could require supplemental coverage, including liability.
Don’t forget that any stand-alone properties on those grounds require supplemental coverage. And homes near water may not qualify for protection from rising water levels or storms.
If you have domestic employees — such as a groundskeeper or nannies — living in your properties, additional coverage may be appropriate to cover workers’ compensation.
Videotaping your homes every year is a smart idea, as it will provide an up-to-date visual record of your belongings, so nothing is forgotten. This could include:
Jewelry
Make sure you have current, qualified appraisals of all items, reflecting the rising value of fine gemstones and precious metals.
Vehicles
Special riders may be required if contemporary or antique cars are garaged in a building that’s not physically connected to a home. Make sure you’re protected against any type of damage, such as smoke, fire and/or water.
Wine and other collectibles
Get a current appraisal of the antiques, stamps, coins, or family memorabilia that you’ve accumulated. While their primary value may be emotional, don’t lose sight of their financial value.
Horses or exotic animals
They are likely housed in external structures and may need special coverage.
Boats and aircraft
Large boats, planes or helicopters are typically valued beyond the limits of commercial carriers. Special policies can insure these crafts for damage, and cover liability for their crews and passengers.
Business Solutions
In this connected age, companies are being targeted for cybersecurity breaches at an increasing rate, including ransomware and malware. You may need more than regular business insurance to protect you and your company against unauthorized access to your data centers and computerized systems ... and any ensuing disruption and losses.
Companies doing business in high-risk countries should also recognize the threat of “corporate kidnapping” of their executives and their family members. If you feel people could be at risk, consider kidnapping and ransom insurance that can reimburse ransom payments and cover many kidnapping-related expenses, including travel and hostage negotiations.
Steps to Take
We met with Steve Nelson, managing principal of EPIC Select, the private client insurance arm of EPIC Insurance Brokers & Consultants. With more than three decades of experience, he’s had the opportunity to help wealthy families and business owners protect what they value most: their families, their homes, their belongings and their investments.
We asked Nelson to highlight some of the most important insurance considerations affluent individuals should consider when reviewing their financial portfolios.
Q. Describe your typical insurance review process with an affluent client.
A. I start with an initial call with them and — if possible — their financial advisor. Understanding their risk tolerance, while paying close attention to their financial objectives, is paramount. During the call, I offer to collect an inventory of their current policies. After a complimentary review, I provide them with a summary of suggested changes or additional coverage to consider.
Q. What areas of property and casualty are often missed by clients?
A. Improperly structuring the ownership and titling of policies is a very common issue. It happens all the time and causes tremendous problems down the line. Also, not having personal umbrella or excess liability coverage properly extended to all assets is common.
Q. Are there any recent trends related to insurance needs?
A. Clients often dismiss the need for flood coverage because their property sits in a lower risk, Flood Zone X. That’s a mistake, because almost a third of all flood claims are made by clients in Flood Zone X. When you consider that water tables are rising, and we are experiencing a higher incidence of catastrophic rains, the need for flood insurance is greater today than what I’ve seen over the past 30 years.
For most affluent clients, I strongly recommend having primary flood insurance at a minimum, even in low-risk areas, and encourage clients to take time to understand how the coverage works. For example, National Flood Insurance policies provide extremely limited contents coverage for below-ground basements. People have to ask themselves: is this enough or do I need more?
Q. What are your thoughts on cybersecurity insurance?
A. Most personal lines carriers have options which can greatly enhance coverage and should be considered. However, I am an even bigger proponent of risk mitigation and prevention. At EPIC, we have cyber insurance professionals who can help evaluate the pros and cons of this kind of coverage.
Q. Any advice for a wealth advisor?
A. It is definitely worth your time to build a relationship with an experienced personal risk professional. Engage with them for guidance and ask them to provide comprehensive insurance reviews for your clients.
People often come to me after they’ve suffered a catastrophic property or liability loss and did not have adequate coverage. That means their investment assets need to be used to make them whole from the loss. It’s in both the advisor’s and the client’s best interest to be proactive with insurance.
Independent Relationships are Key
Working with independent partners who can provide sound, unbiased advice is essential for your wealth management strategy. Many financial advisors and personal insurance agents can only offer policies provided by the companies they serve. An independent wealth advisor, working with an independent insurance professional, can review and recommend options from a wide variety of sources. This gives you access to specialty and high-limit coverages that you might not be able to get otherwise.
Now that you’ve accomplished many of your financial goals, you want to make sure you’re working with professionals who regularly serve the complex needs of high-net-worth and ultra-high- net-worth individuals. Look for financial partners who understand that insurance, applied strategically, is an essential building block of a smart wealth management strategy.
Do you think you might need help with your financial plan? Contact Jamie Caudill at jamie.caudill@mai.capital or call 513-579-9400.
Disclosures:
MAI Capital Management, LLC (“MAI”) is a fee-based registered investment adviser and wealth management firm based in Cleveland, OH. MAI’s Cincinnati office is located at 625 Eden Park Drive, Suite 310, Cincinnati, OH 45202. For more information, call 513.579.9400 or visit www.mai.capital.
The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. MAI is not an insurance broker, and nothing herein is intended to be insurance advice. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.
Edgewood Partners Insurance Center dba EPIC Insurance Brokers and Consultants (“EPIC”) and MAI are affiliated entities, and both are operating companies under Galway Holdings LP.