Not Enough Excess (Liability Insurance)


Basic liability insurance is a standard component of homeowner policies, and is an essential ingredient to providing comfort in knowing a horrible accident around your home won’t destroy your family’s financial standing.

But a topic that needs to be addressed with your wealthier clients, and which can impact the success of the investment plans of your clients, is excess liability insurance. According to a new whitepaper from Spectrem, very few wealthy investors have the excess liability insurance they need to cover all of their assets.

The Liability Insurance Gap came from Spectrem research with investors, who normally are asked about their attitudes and behaviors related to investments and household finance. Additional questioning related to portfolios determined that most investors do not have adequate excess liability coverage to protect portfolios in the case of unusual liability situations surrounding home ownership, personal property damage, automobile or boat accidents, or business litigation.

This study benefits advisors in two ways. It provides background that can lead to important conversations with clients about their potential liability and the dangers that exist in a litigious social atmosphere. A standard homeowners policy coverage rarely reaches beyond the value of a home, and often does not even provide enough funds to completely cover the principal residence.

Second, of course, is the opportunity to sell such insurance, or lead your client to someone with whom you work who can sell them the appropriate amount of insurance to cover their assets.

Examples of the gap between what an investor needs and what an investor has is noted throughout the whitepaper. More than one-third of investors with homes valued between $2 million and $5 million have liability coverage of less than $2 million. Similarly, among investors with a home in the $1 million to $2 million range, more than one-quarter have insurance coverage of less than the home value.

Among investors with a net worth between $15 million and $25 million, almost 30 percent have no more than $2 million in excess liability insurance. Do the arithmetic in that case and you can see where those investors are risking a major portion of their net worth in extreme cases of liability.

The research shows that very few investors with a net worth above $1 million have excess liability coverage that reaches their level of net worth. And, reasonably, the higher the net worth of the investor, the less likely it is their excess liability coverage reaches their total net worth.

More than half (54 percent) of investors with a net worth over $1 million do have some excess liability coverage, but as referenced above, very few have coverage that reaches the level of their net worth.  



©2019 Spectrem Group

Keywords: liability insurance, investors, advisors, Spectrem