During the peak summer days, families naturally gravitate to the great outdoors. For some, this is the ideal time to go for a spin in their favorite recreational vehicle, such as an all-terrain vehicle (ATV) or golf cart, or personal watercraft, such as a Jet Ski. This behavior is especially true for wealthy families who have the greatest ability to afford such vehicles as well as teenagers who are eager to use them.
While fun for both adults and teens, these vehicles are dangerous. Drivers need proper training, and both drivers and riders need appropriate protective gear. Given the potential for serious injury, liability insurance is a crucial component of owning or renting one of these vehicles. Nevertheless, many families overlook or underestimate the need. Wealth advisors can help better protect their clients’ wealth by understanding the risks and underscoring the importance of securing proper coverage through a qualified insurance agent.
The Liability Lawsuit Threat
Lawsuits can arise from a number of dangerous scenarios involving recreational vehicles and boats. Common causes of accidents include improper training, lack of supervision, failure to wear proper safety gear and irresponsible behavior from teens and their friends. In one instance, a $20 million award was granted for the death of a teenage male riding an ATV on a neighbor’s property. The suit claimed the neighbor had permitted him to operate the ATV without proper safety equipment and without adult supervision.
To protect against the threat of a multi-million dollar lawsuit, clients should understand the different levels of insurance required. Homeowners policies often offer a limited degree of protection. Standard industry policies commonly extend liability protection to owned recreational vehicle accidents that occur on the insured property. Liability may also extend to golf carts being driven on a golf course or within the confines of a private residential community. Otherwise, coverage usually stops as soon as the owned vehicle leaves the insured property, unless the client has a superior homeowners policy from a HNW-market carrier. Homeowners policies also typically extend liability protection to recreational vehicles that are rented for short periods of time, such as when the family is on vacation.
Many states require certain types of recreational vehicles to be registered and insured with the rough equivalent of an auto policy for liability. Even in states where they are not required, such policies are wise to consider unless the client is sure the vehicle will not be driven off his insured property—a dubious assumption if teens are involved.
Personal watercraft should also be insured with a dedicated policy. Their powerful motors typically exceed the horsepower limitations for watercraft found in homeowners policies. Standard industry policies will also exclude liability coverage when renting a personal watercraft. By contrast, HNW-market carriers may provide coverage while renting for a short period of time.
Importantly, the amount of liability coverage in a homeowners policy or specialized policy for the recreation vehicle will rarely exceed $500,000, not nearly enough to protect the wealth and lifestyle of a HNW client. Since lawsuits involving serious injury can reach into the tens of millions of dollars, HNW clients should have the added protection of an umbrella liability policy with adequate limits of coverage. deally, the level of coverage matches the client’s net worth and future income stream.
Despite the importance of umbrella liability coverage, many HNW clients leave themselves at risk. An ACE study of households with $5 million or more in investable assets showed that more than 40% had less than $5 million in umbrella liability coverage, including 21% who had none. Most are surprised to learn how affordable umbrella liability coverage can be: $1 million in coverage usually costs only a few hundred dollars, and the cost-per-million declines as they buy more. HNW-market carriers, such as ACE Private Risk Services, offer coverage up to $100 million.
Clients must also be sure to have the recreational vehicles listed on the umbrella liability policy by their agent. Many forget to tell their agent about the vehicles, viewing them as just another toy. They are not. If the vehicles are not listed on the policy, coverage may be denied. The additional cost is usually insignificant for a HNW client. For instance, the cost to add one recreational vehicle onto a $1 million umbrella policy with ACE typically ranges from $30 to $35, depending on the state. For a $5 million umbrella policy, the additional cost would range from $49 to $60.
Accident Prevention Steps
Many teenagers want to jump on the vehicle and go—but that is an accident waiting to happen. Parents should hire a professional operator to teach their children proper riding techniques. They should also establish ground rules for usage. For example, they should require drivers and riders to wear appropriate safety gear. Parents should forbid letting friends drive the vehicle, unless a parent has given express permission. They should insist on a routine inspection of the vehicle before each use to make sure it will function properly.
If renting, parents should also stress the importance of safety with their children.They should feel confident that their children have the ability to correctly handle and maneuver the vehicle. First time users should seek a reputable company that offers on-site training.
Safety protocols and proper liability coverage are key steps to your clients’ safety and asset protection. By understanding the risks and partnering with an expert, independent insurance agent, wealth advisors can help ensure their clients have the right types and amounts of coverage, and strengthen their client relationships as a result.