A:

High-net-worth individuals (HWNI) face unique insurance challenges and tend to gravitate towards different insurance products. Wealthy families have relatively more complicated risk management needs and relatively less obvious needs for catastrophic insurance coverage. The real risk might be overinsuring against minor threats and underinsuring against major ones. The benefits of a high-net-worth insurance policy are largely centered around smoothing out the relationship between needs and coverage.

At-Risk and Underinsured

HNWI often have expensive possessions and hobbies – wine collections, art, racehorses, yachts and old cars – that are easy to forget to insure. Even if they are insured, most don't do the leg work to find out what a possession's actual market value is; the insurance doesn't fit the possession.

A good high-net-worth insurance agent diligently notes all hard-to-replace possessions, finds a way to appraise them accurately and offers an insurance solution that covers against the right risks.

Good high-net-worth insurance policies can safeguard against cleaning accidents or theft by the cleaning staff. In fact, a HNWI might want to cover his assets against suit from an employee or service agency. This is known as employment practices liability coverage, or, more colloquially, nanny coverage.

Estate Taxes

Most high net worth carriers don't offer life insurance. Many HNWI don't actually believe that they need life insurance; after all, if they die, their estate is probably large enough to financially protect their children and spouse.

It's easy to overlook the obvious benefits. The not-so-obvious benefit of life insurance is that it helps save on estate taxes. For HNWI, it can save hundreds of thousands or millions of dollars.

Estate taxes for the wealthy are incredibly high. Standard rates are 50% of net worth or higher, and those who improperly protect their possessions or fail to name beneficiaries can lose a lot more than that.

If, for example, an individual dies with $10 million in assets without any life insurance, the entire balance may be subject to estate taxes. Five million dollars or more are at risk. However, current federal law allows up to half to be passed on, tax-free, to the spouse or children. In this case, only the remaining $5 million would be subject to estate taxation. This could save the HNWI $2.5 million in taxes.

High Value Homeowners Insurance

Even for HNWI, the home tends to be the most valuable asset and the most important to cover. In most states, high value homeowners insurance coverage contains an allowance for jewelry or other lost valuables. HNWIs should maximize their benefits whenever possible within fewer insurance products, if only for simplicity.

Those with multiple homes in multiple markets should probably find individual coverage for each property. State and local ordinances, regulations, and homeowners associations all influence the possible and necessary benefits required in a policy.

RELATED FAQS
  1. Under what circumstances would I benefit from a high net worth insurance policy?

    Understand what a high-net-worth insurance policy is and learn some of the factors that may make it appropriate for high-net-worth ... Read Answer >>
  2. How does life insurance help high net worth individuals protect their businesses ...

    Explore how life insurance can help high-net-worth individuals protect their businesses and personal wealth by protecting ... Read Answer >>
  3. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  4. How can premium financing of life insurance help high net worth individuals (HNWI)?

    Discover the various benefits that premium financing of life insurance policies might enable high-net-worth individuals to ... Read Answer >>
Related Articles
  1. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  2. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  3. Insights

    Top Ranking Nations By HNWI

    The United States, Japan and Germany together make up 53.3% of the total worldwide high net worth individual population.
  4. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  5. Insurance

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  6. Insurance

    4 Types Of Insurance Everyone Needs

    Here are four forms of insurance that are vital to have.
  7. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  8. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
RELATED TERMS
  1. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  2. Assigned Risk

    A risk that an insurance company is required to provide coverage ...
  3. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  4. Insurance Coverage Area

    The geographic region in which an insurance policy’s benefits ...
  5. Cover Note

    A temporary document issued by an insurance company that provides ...
  6. High Net Worth Individual - HNWI

    A classification used by the financial services industry to denote ...
Hot Definitions
  1. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  2. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  4. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
Trading Center