Umbrella Policies

Customized Protection for High Earners

March 20, 2017

High Earners
Business owners or executives—are increasingly at risk from threats to their assets and personal wealth. Most people have a portfolio of personal insurance policies, but a business owner or a top executive has a much different level of risk and should have a greater awareness of that risk—and the tools to protect him or herself.

At a time when criminals are increasingly sophisticated, technology is difficult to keep up with, and litigation continues to be a popular first-, rather than last-resort, those with a higher profile need products and resources that most insurance buyers don’t think about.

Extra liability protection for such individuals and their families can come in many shapes and sizes, but they can greatly expand the coverage available to policy owners. Usually these policies are called umbrella insurance.

Liability Concerns for High Earners
High earners have faced an array of lawsuits in recent years. And as a report by Ace Private Risk Services finds, wealthy executives and business owners are more likely to be sued in personal injury situations. “If the defendant is wealthy, this increases the potential for being hit with a suit,” said Jeffrey O’Hara, a lawyer quoted in the report. “A situation that otherwise might have been viewed as a ‘nuisance event’ by the victim is now seen as offering a potential windfall.”

In some cases, the incidents are serious—and these can lead to large lawsuits. Injuries to water-skiers who have fallen and gotten tangled with propellers; a deck on a new home that collapsed at a party; domestic staff injured while doing building repairs, or a teen who crashed a car and injured several people because of texting while driving: all these cases ended with judgments in the tens of millions of dollars.

Many top earners just aren’t aware that they can be liable for such high dollar amounts. There is often an assumption by top executives that their current insurance is adequate to meet the possible risk. A recent survey of highly successful individuals found that most of them thought the highest amount of damages they could be held accountable for was under $5 million. This is not the case—and insurance is available for higher numbers—up to $100 million in coverage. Although many top earners might think such insurance is prohibitively expensive, the options for more complete coverage is varied, and the increased cost may be relatively small, compared to the risk involved.

If an individual is found liable for damages that exceed what his or her insurance covers, courts often start with the liquidation of assets, starting with savings and investment. Real estate such as vacation homes is usually next, up to and including a primary residence. Courts are not sentimental about seizing property to cover claims. Incomes can also be garnished.

In short, a court judgment against an individual, coupled with inadequate insurance protection, can radically change the lifestyle of the individual and his or her family. Retirement plans and irrevocable trusts provide some protection from court rulings; but only to a degree.

Other Things An Umbrella Policy Can Cover
In addition to addressing inadequate limits of liability protection, executives and business owners also face other challenges. Some have insurance policies with different carriers, which can result in confusion and conflicting claims. Some sit on charitable boards, which can be subject to lawsuits for employment practices such as discrimination. Board members are often named in such lawsuits.

Domestic staff issues are also a common problem area for high earners. Employees may file workers’ compensation claims, or sue over employment practices. Sometimes an executive’s house staff is overseen by a trusted employee who may not be knowledgeable about HR issue—this can lead to lawsuits that might have been avoided if employment practices had been reviewed as part of a risk assessment.

In addition to those areas of concern, high earners should look at other protections that usually come under an umbrella policy*:

  • Reverse liability protection, which comes into play if a high-earner’s policy is inadequate to cover damages in a specific case. Reverse liability protection provides coverage for such a situation, protecting the policyholder’s assets.
  • Shadow defense protection, which can provide funding for an individual to bring his or her own attorney into a liability case.
  • Reputational protection, an insurance policy to address reputational damage from a lawsuit or other event that damages an earner’s reputation.
  • Medical evacuation protection*, which provides funds for extracting an family member out of a country if there is an illness or injury.
  • Family trust management protection, for court cases where family members go to court in trust fund disputes.

* (Medical evacuation policies are usually treated as a separate insurance policy from umbrella policies.)

Personal Security and Crime
Wealthier Americans are often the target of criminals, and the creativity and resources of would-be thieves should not be underestimated. To start with, a state-of-the-art home security system is essential, and systems such as proactive credit monitoring should also be put in place.

The Internet is increasingly an area of risk for executives and business owners. There are many cases of a high-earner’s social media accounts being monitored for signs that they are away on vacation. Photos from your trip to the Bahamas should be posted after you return, and you should note when posting them that you are no longer there. Family members should also observe this precaution.

Likewise, be very careful with all personal information; make sure your family is educated on what cyber-risks they will face. Teenagers who use family credit cards, for example, should be educated explicitly about the risks of phishing or other cyber crime that tries to obtain personal information—by impersonating a legitimate site and asking about social security numbers, for example.

Any family member who uses social media or does shopping online should be aware of the risks of unsecured servers in public areas such as coffee shops or libraries, and how criminals can access personal data over those networks.

The wealthier the individual, the more they should invest in security. Security staff is a fact of life for the most affluent. But even those with moderate wealth should be proactive. When evaluating your umbrella policies, ask about worst-case scenarios such as kidnapping and home invasion. In addition, special attention should be paid to background checks on contractors and home staff.

Risk Management Reviews
The first step for anyone with a higher level of risk is a risk management assessment. Insurance experts can review an individual’s level of risk and provide an outline of what their liability limits should be. Insurance products for up to $100 million exist. And although that type of case is unusual, high-earners should carefully review what might be appropriate for their level of income.

Those with experience in this area can help policy-owners explore what their liability is in areas such as trusts and charitable boards. They can suggest solutions for areas such as household staff, or liabilities that could be created by teenage children. There are many areas where a family’s assets can be put at risk; a risk management assessment will cover all the bases and find the most appropriate strategy. No one wants to endanger their family’s assets; by reviewing their options, high earners can be sure that they are protected against some of the biggest risks out there today.