The tendency of wealthy individuals and families approaching or in retirement to keep personal insurance policies largely untouched for years on end exposes them to the threat of lifestyle-changing losses and unnecessarily high annual expenses, according to ACE Private Risk Services.
A white paper released this week by ACE Group’s high-net-worth personal insurance business says that the most serious threats to retirees’ or near-retirees’ net worth come from exposure to big liability lawsuits and significant property loss at home. As well, many people overlook savings opportunities in their personal insurance plans.
The paper includes a guide to build and maintain a personal insurance plan into retirement.
“Financially successful couples and individuals in or near retirement face some of the most complex decisions about insurance at any time in their lives,” Robert Courtemanche, division president of ACE Private Risk Services, said in a statement.
“Retirees and pre-retirees should craft a personal insurance program with sufficient umbrella liability coverage to match their at-risk assets, ensure their home is covered to its full replacement cost instead of its market value, as well as seek savings through higher deductibles and bundled insurance policies.”
The white paper’s 13 recommendations for wealth protection and strategic expense management in retirement planning:
1. Purchase umbrella liability insurance to match at-risk assets.
Wealth tends to attract lawsuits. A jury award or settlement in a case involving an accident that resulted in serious injury could approach tens of millions of dollars. ACE research has found that more than 40% of wealthy households have less than $5 million in umbrella liability coverage, including 21% that have none at all.
2. Seek full replacement cost coverage for your home.
Most homes in the U.S.—a significant, if not the largest, component of net worth for people near retirement—are underinsured. The best insurance policies will provide full replacement cost coverage for the home structure, including rebuilding with similar quality materials, even if that cost exceeds the coverage limit in their policy.
3. Increase homeowner and auto deductibles.
Increasing these deductibles can save hundreds, even thousands, of dollars per year in insurance premiums. An increased deductible on a million-dollar home from $500 to $2,500 could save $900 a year, according to ACE.
4. Name trusts and limited liability companies on insurance policies.
Wealthy families and their advisors must remember to name trusts and LLCs—set up to shield homes, valuable collections and financial assets and maximize wealth transfer—on the appropriate insurance policies, or risk leaving themselves or the trust unprotected against liability lawsuits.
5. Attend to liability risks from hobbies turned into small businesses.
Turning a longtime hobby, such as a vineyard, farm or horse stable, into a small business can create substantial liability risks.
6. Make sure the homeowners policy includes ample coverage for loss assessments if the residence is part of a property association.
Have your insurance agent review the association’s bylaws and insurance program to understand your responsibility for loss assessments, which can sometimes amount to tens of thousands of dollars.
7. Take inventory of home contents and make sure the coverage limit for personal property matches its replacement cost.
An ACE analysis of 400 homes valued between $2 million and $7 million found that homes owned by people born before 1940 were more than twice as likely (66%) as those owned by people born after 1970 (30%) to be underinsured for contents. Overall, nearly half were underinsured for contents, and the average amount of underinsurance was $600,000.
8. Ensure that the homeowner policy includes coverage for building code upgrades.
Retirees who have lived in their homes for decades are particularly at risk if their insurance does not adequately cover the cost of bringing a damaged residence into compliance with the latest ordinances and laws.
9. Use the added protection of a valuables policy for jewelry, art and wine collections.
According to an ACE study, 94% of all wealthy households have valuable collections, and nearly 40% do not have all of their precious collections protected by a valuables policy. Instead, they rely solely on their homeowners policy, possibly not realizing that these policies restrict the amount of coverage for fine collectibles and breakage of fragile items.
10. Address the need for director’s and officer’s liability coverage if volunteering as a charity’s board member or trustee.
Volunteer board members and trustees can be sued personally for the actions or inactions of the charitable organization, most commonly wrongful employment practices. These types of suits are not covered by a basic umbrella liability policy. Although the organization usually carries insurance to protect itself, coverage limits may be inadequate to cover some of the worst cases.
11. Get credits for loss prevention systems and upgraded plumbing, electrical and heating systems.
Most insurers offer premium credits for safety and security systems installed in homes and automobiles, but many people fail to take advantage of them. Either they do not tell their agent about the presence of the systems, or the agent fails to ask them about the systems.
12. Bundle different policies with the same carrier.
Using different carriers for auto insurance and homeowners insurance because they promise savings forgoes the opportunity to earn package discounts that can be 10% or higher, according to ACE. In the best cases, the policies can be written as part of one package with common term dates and one consolidated bill, saving the retiree time as well as money.
13. Insure classic cars with a classic car policy, not a standard auto policy.
People in or near retirement who own classic cars may not realize they can insure these vehicles with a classic car policy, which typically costs much less than a standard auto policy. Classic car policies cost less because insurance companies know the cars are driven only rarely and usually very carefully.
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