A Muskoka cottage, a boat or two and a few luxury cars, plus the globetrotting résumé that comes with them. It’s an enviable lifestyle to many, but one that also invites risk.
The higher profile of most high-net-worth people, and the ease of acquiring information about practically anyone these days, makes them a target for litigation.
Let’s say you’re in an auto accident and you injure someone.
“Your auto insurance policy covers you to a certain amount,” says Karen Ritchie, senior vice-president at Baird MacGregor Insurance Brokers LP in Toronto. “But it’s not hard to find out about people nowadays by Googling them. They might find out you’re a senior executive, for example, and the amount of the lawsuit goes up.”
Even frivolous lawsuits can result in settlements in an effort to keep a case out of the courts.
Wealthy people need ample liability insurance, and specifically a personal liability umbrella policy that provides coverage over and above that offered by a home or auto policy, experts advise.
Many high-net-worth individuals fail to recognize the threat to their personal wealth, leaving them exposed to lawsuits for everything from libel and slander to property damage and personal injury.
“Typically, [buying adequate liability insurance] is very low on their priority list,” says Ian Black, a financial advisor with the Vancouver-based wealth planning firm Macdonald, Shymko & Co. Ltd. “ It’s not even on most people’s radar screen for a variety of reasons.
“At a minimum, we often bump up clients’ [personal liability] auto coverage to $3-million or $5-million.”
How much insurance is enough?
Because lawsuits exceeding $2-million are commonplace nowadays, even less-wealthy individuals need substantial personal liability coverage, says Cynthia Kett, principal at Toronto’s Stewart & Kett Financial Advisors Inc.
She advises her high-net-worth clients to carry umbrella liability policies, but she stresses that the amount of coverage doesn’t need to correlate directly with their net worth.
“I don’t think it’s relative to assets,” she explains. “I think it’s relative to exposure to situations that could create liability.”
An example would be throwing lavish dockside parties for dozens of friends at that million-dollar Muskoka cottage, Ms. Kett says. Or, if a passion for activism puts a wealthy person in a position to comment on controversial topics, he or she could face exposure in the form of slander or libel suits. The possibilities are endless if a plaintiff knows your net worth and is keen to cash in, she says.
People serving on the board of directors of a corporation should carry directors and officers insurance. It’s important to note that personal insurance doesn’t provide protection on the business side.
Additional personal liability insurance is relatively cheap to buy, Ms. Ritchie says.
“Let’s say you’re carrying an extra $8-million [in coverage]. It might only cost an extra $800 a year to get yourself up to $10-million. It buys you peace of mind.”
People who live squarely in the limelight, however, might have a difficult time finding enough insurance.
High-profile athletes, entertainers and business executives might not be able to buy personal liability insurance from mainstream firms, who recoil at the degree of risk associated with celebrities, says Heather Posner, the Los Angeles-based director of private client insurance for Burns and Wilcox, a global insurer specializing in high-net-worth and hard-to-insure clients.
Instead, “there are specialty markets for athletes and entertainers that we access for their primary and excess coverage.”
They often must “layer” coverage, however, by approaching multiple carriers. Even then there are limits to how much insurance a celebrity can buy.
“There’s a point where you can’t purchase enough liability insurance to protect all of their wealth,” Ms. Posner says. “Typically, you don’t see people go over $50-million for their liability coverage.”
Her advice to high-net-worth individuals, many of whom devote substantial amounts of time finding top lawyers or accountants, is to do the same when selecting an insurance broker.
“They need the right type of broker that can handle their insurance needs and do an audit to ensure there’s no gaps,” she says.
“There are so many stories of people losing their wealth because they’re not protected, or they have to pay hundreds of thousands of dollars [in settlements] because they have large gaps in their coverage.”