“My winter getaway in Key West just burned down.”
“Did you have everything insured.”
“Uh, not exactly. Didn’t get around to doing it.”
“I guess we never discussed this.”
“No, we didn’t.”
Most of us who have worked as FAs have had a conversation like this with one or more of our clients. We assume, usually to our regret, that our high-net-worth-clients have competent professionals in the areas outside of our purview. Often this isn’t the case.
In your practice as a holistic wealth adviser, one of the most helpful things you can do for your clients is to ask them about their insurance coverages across the board. Start with homeowners insurance. Are your clients dealing with an insurance firm which specializes in writing policies on the homes of high-net-worth clients? If not, why not? Presumably, your HNW clients have at least two or three homes. Who keeps track of the insurance policies on these properties? If the answer is “no one,” then you have some work to do.
The first task for your client is to find their most current homeowners policy for each home they own. People stick these in all sorts of places and then forget where they have put them. A bit of searching may have to go on since your client could easily be in a situation of: “I have put these documents in such a secure place in my home that I myself cannot find them.” Nonetheless, encourage your client to keep looking and at the minimum bring you the policy for their main residence.
When you read through the document, you want to determine whether the policy is for a stated value or the replacement value of their home. A friend in New Orleans had a beautiful home demolished by Katrina. He watched as a bulldozer loaded the wreckage of his life into dump trucks which took it away. He stared at what he had left: a nice, empty lot.
Fortunately, he had insured his home for the replacement value. So, he has a new home as nice as the one he used to have although a lot of memories are gone. Lots of other people in New Orleans discovered, painfully, that their homes were not insured for replacement value. This is especially important in historic homes since you don’t want your historic windows replaced with adequate but run-of-the-mill windows from a big box store.
Next, look at the page which lists policy exclusions. Water damage is rarely covered. This includes sewer system and drain backups. You can add a rider for this. However, to insure a home against mudslides and/or floods, you need to purchase a separate policy from your agent which is underwritten by the National Flood Insurance Program. A wind insurance policy will also need to be added separately if you live in an area susceptible to wind storm damage.
Perhaps the most important issue with high-net-worth clients is liability coverage inside their homes. Maybe it's $200,000 because no one has looked at the policy in a long time. Often people forget to increase their liability insurance as their net worth grows or fail to purchase a blanket liability policy. If your HNW client has contracted with someone to do repair work in their home and that person slips and falls, then they will need a doctor and you will need a lawyer— and a big liability policy. But does your client have such a policy? You need to impress upon your clients that people who have buckets of money attract lawsuits like petting zoos attract children.
This isn’t to suggest you need to become an expert in the types of insurance your high net worth clients require. What you must do is make certain your HNW clients begin to work with one of the several insurance firms which specialize in serving the high net worth market. You will be doing your clients a huge favor.
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Contributing Writer: Subject Matter Expert Charles McCain