Whatever you call people with a lot of money — wealthy, affluent, well-to-do or just plain rich — they likely have insurance needs that differ from the average person.
Not only might they have more expensive cars, homes, vacation homes and other belongings to insure, but with more money in the bank and other assets, they’ll have more to protect from liability lawsuits.
The main purpose of insurance is to make you or your family whole again financially in a loss. This includes rebuilding a home destroyed by fire, repairing a car damaged in a crash, and replacing at least part of a six-figure income with life insurance if the policyholder dies.
A secondary purpose, however, is more likely to be used by the rich than by average insurance policyholders — though they may need it also. Protecting your assets, no matter how big or small, can be done with extra insurance coverage.
It’s not a topic people think about often, including the rich.
“Most of the time when I sit down with people who are very wealthy, they don’t have things together” with enough insurance, says Jason Silverberg, vice president of financial planning at Financial Advantage Associates in Rockville, MD.
Here are some considerations for the rich in various types of insurance:
Auto: Insuring a Lamborghini or a Bugatti may require a large insurer that specializes in expensive cars.
Whatever auto insurer they choose, rich drivers may not necessarily use it to pay for repairs to their car for fear or increasing their rates after filing a claim. What they may want it more for is uninsured/underinsured coverage in case they get in an accident with someone who isn’t insured or doesn’t have much coverage.
A bigger fear may be not having enough liability coverage with their auto insurance, says Jim Cote, a financial wealth advisor and a presenter for the Financial Education Institute, which provides free financial educational resources to the public.
Umbrella insurance: With expensive cars, home, boats and other toys, along with other assets such as retirement accounts, an affluent family should look at its personal risk management just as a business would do, Cote says. If a car is covered with the maximum liability coverage and the owner causes an accident, the injured person could sue for other assets.
For as little as $150 a year, a $1 million liability umbrella policy can be bought, Cote says.
Just having the minimum liability limits on an auto insurance policy, for example, can put a family’s assets at risk, says Bob Passmore, assistant vice president of the personal lines policy at the Property Casualty Insurers Association of America.
“The more insurance you have, the less likely it is that someone’s going to be able to get at your assets,” Passmore says.
Homeowners insurance: Just as the owner of an expensive car would want to have it fully insured, so would the owner of an expensive home or multiple homes, such as a vacation home.
Everyone should make sure they’re covered for “replacement cost,” which is higher than “market value” and includes current costs to fully rebuild a home. Wealthy people with expensive homes, however, may want to buy extra insurance to pay for upgrades they’ve made to their home, such as a hot tub in the bathroom.
If expensive artwork, jewelry or other rare items are in a home, owners may want to add an insurance rider to cover their loss or damage in a theft or fire. Accidental damage or “mysterious disappearances,” however, may not be covered by riders and may require a high-net-worth policy.
As with other types of insurance, including life and auto, homeowners insurance should be reviewed regularly to make sure you’re fully insured as circumstances change. If you’re getting married, more jewelry may now be kept at home, requiring more insurance.
Life insurance: If you’re wealthy and your family is accustomed to living off of your high income, then extra life insurance is a natural need, Silverberg says.
“If they’re not around, then that income is gone,” he says of a sole breadwinner.
Most people, including those making $400,000 a year, live paycheck to paycheck, Silverberg says, so having enough insurance to cover college, run a household, pay off debts and a mortgage, and cover other expenses can help families that aren’t saving enough.
It can also help in other ways, says Chris Huntley, director of marketing for TermLifeAdvice.com.
“If you think life insurance is only for the poor and middle class, you’re missing a huge opportunity to conserve, and even grow your estate with the incredible leveraging tool of life insurance,” Huntley says.
Savvy, affluent families use life insurance to provide liquidity to an estate that’s primarily comprised of non-liquid assets such as business or real estate holdings, pay estate taxes for pennies on the dollar, and to enhance their charitable giving, he says.
Life insurance can be used to pay estate taxes for a family business, such as a farm, without having to sell off farm equipment to pay the tax bill. For a high-net-worth family, life insurance can be the difference between losing a business to tax bills and keeping it.
The rich, just like anyone else, want to hold on to as much of their money as they can. Insurance can help them accomplish that goal.
Aaron Crowe is a freelance journalist who specializes in personal finance topics.