Despite carefully establishing trusts, reviewing succession plans and considering tax implications to preserve and
Wealth advisors should play an increasingly important role in working with such clients to make sure they have
Here are some hidden risks you and your clients should be on the lookout for.
Domestic employees
High net worth individuals need an extra layer of protection in their
It's also important that clients take a deep dive into prospective employees' history, conducting background checks for criminal activity or bankruptcy claims in recent years, for example. It can be easy for an unscrupulous housekeeper or employee who works closely with the family to slowly siphon away money and valuables. Most HNW carriers offer a few complimentary background checks each year.
Social events in the home
Home entertaining can pose risks, particularly if alcohol is served at such events — and especially if a guest gets into a car accident after leaving the premises. Even if the individual has been overserved before arriving at the client's gathering, the host can still be named in the claim. We know of high net worth hosts who administer Breathalyzer tests at the door to all departing guests — or at least to guests who seem visibly impaired. Others offer ride services.
Additional liability coverage is necessary for clients to protect against claims of bodily injury and property damage when hosting social events at their place of residence. For instance, insuring for potential damages from parking valets and other event staff is highly recommended (staff should also receive a background check). There are special events policies that can be purchased, which are often inexpensive and will cover these exposures.
It's also a best practice to carefully evaluate who will be driving vehicles owned by the family. If a nanny or au pair gets into an accident, both they and the high net worth individual will be sued. Remind your clients that anyone driving their cars should be screened for prior accidents and ensure they maintain a current and valid driver's license.
Name games
Wealthy individuals may own cars in their own name, via their corporate entity, an LLC or a trust. In all cases, the insurance policy must match the registration. If the insurance policy incorrectly omits naming the trust or LLC, then the insurer can possibly deny the coverage.
In general, for families that have established trusts and LLCs for the ownership of their assets, their insurance policies need to accurately reflect those trusts and LLCs, and how individuals are named, to ensure full coverage. The same can apply in cases where HNW individuals have purchased homes for family members. Both the owner and the occupant need to be named insureds or there needs to be a separate renter's insurance policy to help protect both parties.
If the property was purchased through an LLC, the LLC must insure it and name the individual as the additional named insured. If a commercial business/entity purchased the property, and there is other income generated by that entity/business besides owning the property, the policy will need to be carefully handled and protected through a corporate commercial policy instead of a personal lines homeowners' policy.
It's part of the due diligence process for the underwriter and risk manager to dig deep into the family's legacy to understand how the assets are structured and to ensure they are properly underwritten. It only takes one gap in the policy to cause a potential issue.
With lawsuits on the rise, it's never been more important to discuss any potential gaps in coverage with your HNW clients. Your extra diligence may help them avoid a potentially costly disaster.
