Matching HNW Clients’ Coverage With Their Risk Profile

"I remember another situation," Celia said, "a new client who came to me with multiple residences, valuable cars like Maseratis, Ferraris and a McLaren, and a fantastic fine art collection. The gentleman had only recently become financially successful. His previous agent had bought an excellent insurance policy covering his art and other valuables, with a sizable umbrella liability policy on top. But the client's cars were covered by separate insurance policies that he had bought on his own from a low-priced standard insurer he'd been with previously."

The limits of the automobile policies were consistent with the value of the cars—a good thing, of course. The problem, however, was that the umbrella liability policy did not extend coverage over the pricier vehicles. Celia pointed this out to the customer that day in her office. "Needless to say, when I described the potential risks he had inadvertently exposed himself to, his jaw hit the floor," she said.

Since each of us is different, our insurance coverage should reflect these differences. Some people sit on nonprofit boards, requiring an in-depth evaluation of the entity's directors and officers liability insurance policy. Others have teenage children texting, blogging and posting pictures on social networks that may expose them and their parents to charges of libel, slander and defamation. Complex trusts and estate tax planning strategies differ among high-net-worth families, creating other serious financial exposures.

Celia tells another potent story underscoring the dire need to paint a full portrait of family risk before buying insurance. "I've heard time and again of wealthy parents who buy an apartment in Manhattan for their children to live in after college just as their children begin their work lives," she said. "They then fail to buy liability insurance on the apartment, because it is their smart son's or daughter's apartment after all, and they believe they will buy their own policy."

Most young people would do just that, but not all, Celia explained. "If an accident happens in that home, guess who is on the hook, liability-wise? It's not the child. It's the person whose name is on the title," Celia said.

The moral of these stories is hopefully clear: You may not like to talk to strangers about the personal elements of your lives, but when it comes to insurance, you simply have to open up. As Celia puts it, "If your agent or broker isn't asking probing questions about your hobbies, passions, children and their activities, even such 'How dare you!' questions like, 'How often do you host parties?,' then you have the wrong agent or broker."

Excellent advice. When it comes to insurance—even if the sky literally is the limit—it's the coverage that really counts.