What to Consider Before Purchasing High Net Worth InsuranceAnchin Private Client CenterJanuary 21, 2021
Given the myriad providers and customizations available, purchasing property and casualty insurance can be a daunting task for any family. Yet, depending on the circumstances, purchasing insurance can often be even more complicated for High Net Worth Individuals (HNWI), as they tend to have more complex balance sheets leading to more intense insurance needs. Of course, we caution that insurance is unique to each family and it’s an issue that should be discussed with your financial advisor and insurance broker. However, as you go into this discussion, here are some things to keep in mind before purchasing.
One of the first considerations is the trade-off between your deductible and premium. The right option for you, as in many things, comes down to personal risk tolerance. If you have a higher premium and lower deductible, you won’t experience a large change in costs in the event you need to file a claim. This allows you to keep your overall expenditures relatively stable, which can be crucial in times when cash flow is uneven.
Conversely, if you think that you are not likely the type of person who wants to go through the trouble of filing a claim unless it is something major, or you only want to cover yourself in the case of something catastrophic, then going for a high deductible might be the right solution for you. That said, it can be helpful to take a look at how much your premiums would change if you ever were to increase or decrease your coverage. The increase in cost to upgrade to more comprehensive coverage might not be as much as you think and knowing you have appropriate coverage can provide peace of mind while reducing risk.
Another consideration is how many policies you are willing to hold. You may be able to lower your overall premiums by purchasing specialty insurance, but that comes at the cost of additional administration and complexity when filing multiple claims. One way to simplify your insurance is by finding policies which cover additional assets, such as homeowner’s insurance that covers jewelry and collectibles.
An area that is often overlooked on homeowner insurance policies is mold coverage. With the world we are currently living in due to the pandemic, many individuals are leaving primary residences for extended periods of time to spend more time in second homes. While homes sit empty, water leaks can occur and if not caught in a timely manner, the damage can be catastrophic. The basic coverage included with most standard policies would potentially not be enough to cover a large loss and the cost of increasing your coverage is typically not cost prohibitive.
A largely debated aspect of HNWI insurance is how to answer the question - how much personal liability or umbrella coverage is enough? While this is another personal decision, and is often driven by the mix of assets that a family owns, it is an item that warrants healthy consideration and debate with your financial advisor and insurance broker before concluding on the amount of coverage that should be maintained.
Keeping these considerations in mind can help you and your family articulate your needs while aligning with your personal risk tolerance. With the help of your financial advisor and insurance broker, you can strike the right mix that is best for your situation and that will help preserve your legacy – even when “Murphy’s Law” strikes. Additionally, if you are reading this and thinking you can’t possibly add another policy to manage, it may be time to look into family office or business management services. Anchin’s Private Client Group acts as a personal CFO to many families and can manage insurance policies as well as things like payment of bills; financial reporting; and process, technology and internal controls.
If you are interested in learning more aboutF family office or business management considerations, contact your Anchin Relationship Partner or Kristen Thurston, Anchin Private Client Senior Manager.