High Net Worth and Highly Underinsured?

iStock_000008977495XSmallYou might feel modest about your personal net worth, but a little too much modesty might do you a disservice in terms of insurance, according to a new study cited by Insurance Journal. In the study, it seems that people who have high net worth frequently do not acknowledge the difference in insurance that they require relative to the average homeowner. As a result, these individuals frequently find themselves underinsured. You’ve worked hard and the fruits of your success should not be put at risk because your insurance no longer meets your needs.

Your home insurance is an important component of your personal financial plan as it revolves around what is likely your single largest asset: your home. Having enough home insurance involves two aspects: damage to your home and personal liability. In the case of individuals with high net worth, they may not be properly insured on one or both fronts. If you find that you have a high-value home or have substantial assets, it’s time to investigate whether or not you are using the right insurance products.

It might seem straightforward that you simply have a high replacement value on your home insurance policy in an amount sufficient to cover your home. Unfortunately, this isn’t always possible. Many insurance companies have guidelines on the type of risk they wish to insure. Some insurance companies prefer more run-of-the-mill homes and not those of very high value. When you have a very high-value home, their rates may not be as advantageous as those of an insurance company that specializes in such homes. Additionally, if you can afford a multi-million dollar home, you can probably afford a higher deductible. Again, some insurance companies might not offer a higher deductible and you would potentially end up paying much more in premium than you should.

When it comes to personal liability, you should also consider a higher limit. It’s not uncommon for the average homeowner to carry a $1 million personal umbrella policy. However, if you have substantially more than $1 million in personal assets, it’s probably a good idea to have a higher limit on your policy. The incremental cost to raise the policy limits can be fairly small. Unfortunately, if you have your insurance with a company that does not even offer higher limits, you will never have an opportunity to find out. Therefore, it’s better to check in with insurance companies that might be familiar with offering larger policy limits.

Another benefit of insurance companies that specialize in high net worth individuals is their ability to provide a higher caliber of service. Because these insurance companies deal with a smaller subset of the population, they can gear their products and services in a way that is more tailored to their audience’s needs. You should know that you might not always have to actually switch insurance companies to avail yourself of these benefits and policies. Many of the insurance companies that specialize in high net worth individuals also write standard policies. They simply have a different division of their company that is focused on this different risk. However, they will likely not ask you if you need to move into their specialized division. It’s up to you to ask the question —make sure you do!

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