You’ve worked hard to accumulate your wealth. You understand the risks associated with investing and growing your assets, and you’ve worked diligently to protect yourself with prudent diversification, rigorous manager selection, and tax-efficient strategies. However, if you’re like many high-net-worth individuals, you may think less often about the whole spectrum of other risks that can affect your financial security. These risks include personal liability for accidents that could occur on your property or in corporations or nonprofits where you are a board member. While these events are unfortunately beyond your control, effective asset protection planning can help protect you and your wealth.
Here are seven steps to help protect yourself from liability risk:
STEP 1: Purchase adequate property and casualty coverage
Insuring your home and possessions is the first step toward liability risk protection; however, by itself it’s often inadequate. Most homeowner policies, for instance, cover only the value of the property and its contents— not the legal damages that can result from a crime or injury on your property. Moreover, standard policies may not cover possessions like boats and aircraft. And finally, these policies often top out at $500,000 in coverage, while personal liability lawsuits can result in multi-million dollar damages.
STEP 2: Add an umbrella policy
Umbrella liability coverage adds critical protection over and above the amounts provided by auto and home insurance policies. High-net-worth families who don’t have adequate umbrella coverage can be forced to give up their savings and investments, the equity in their homes, and even a portion of future income to pay damages. How much umbrella coverage do you need? Most experts recommend an amount that matches your net worth, plus your future income stream. So if you have assets worth $10 million, and you expect to earn an annual income of $1 million over the next 20 years, you might need $30 million in coverage. Carriers that specialize in the high-net-worth market offer coverage up to $100 million.
STEP 3: Consider optional coverage for household employees
Many wealthy families do not realize that they can be held liable for damages caused by their employees’ accidents and criminal acts, including sexual harassment. Some umbrella policies offer optional special coverage for household employees, protecting you from this risk.
STEP 4: Don’t forget about children and other dependents
You can also be sued for damages caused by your children and other dependents, even if you aren’t directly involved. For instance, if your son or daughter is involved in an auto accident, the victim(s) can sue you for damages, even if your child no longer lives with you. A good umbrella policy will cover your immediate family and any other relatives for whom you are responsible.
STEP 5: Consider professional liabilities
Doctors, lawyers, and other professionals who regularly provide advice require professional liability insurance in case they are sued. If you are retired and no longer maintain this kind of coverage, be careful about the advice you give, even under the most casual circumstances. You can still be sued, even for guidance given in a nonprofessional setting.
STEP 6: Assess your director and officer liabilities
Don’t let your charitable activities put you at risk. If you’re on the board of a nonprofit, ask your insurance advisor to review your directors and officers (D&O) coverage to make sure it’s sufficient. If not, consider adding not-for-profit D&O coverage to your program.
STEP 7: Integrate all types of applicable coverage in a cohesive strategy
Asset protection is complicated, and it can involve many different policies. By choosing the same insurer for multiple types of coverage or by having a dedicated insurance advisor look over your entire plan, you can increase the likelihood that your strategy is cohesive, without gaps in coverage or duplication.
You’ve worked hard to provide financial security for yourself and your family. Don’t let unforeseen, uncontrollable events put your wealth at risk. Integrating asset protection and estate planning can help protect and preserve assets for you and your loved ones.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.