Five Key Ways Homeowners Might Be Unknowingly Putting Their Wealth at Risk
In wealth management, we frequently focus on growing and protecting liquid assets—investments, savings, and financial portfolios. Yet, for many affluent families, a substantial portion of their wealth is tied up in tangible assets like homes and valuables. Ensuring these assets are fully protected is crucial to safeguarding overall wealth.
Below, I’ll explain five common but critical mistakes homeowners make that can expose them to unnecessary risks and how to correct them.
1. Inadequate Liability Coverage
A robust umbrella policy is essential if your net worth exceeds your current liability coverage. Affluent families often underestimate the level of protection they need, but this oversight can be costly if an unforeseen liability arises. Take, for example, a hypothetical family worth $10 million with only a $1 million umbrella policy. A serious liability event could leave $5.5 million of their assets exposed.
Solution: Work with your wealth advisor and insurance provider to ensure your umbrella coverage aligns with your total assets. This can prevent devastating losses that can arise from underinsurance.
2. Lack of Cohesive Coverage Across Multiple Homes
Owning multiple residences across different states—such as a primary residence, beach house, or ski home—presents its own set of insurance challenges. Multiple policies with different carriers can leave gaps in coverage. Consider a family with homes in New York, Florida, and Colorado. Despite having a $15 million umbrella policy, their policy did not extend to their Aspen home, leaving it unprotected.
Solution: Seek a consolidated policy approach through a high-net-worth insurance provider. This streamlines coverage ensures cohesive protection and often results in cost efficiencies. Ensure that all residences, especially those held in different states, are included in your policy discussions.
3. Failing to List Trusts or LLCs on Policies
Families incorporating trusts or LLCs into their estate plans must ensure these entities are correctly listed on homeowner policies. Coverage might be voided in a liability event if a residence is transferred to an LLC but isn’t listed on the homeowner’s or umbrella policy. For instance, a retired couple relocated to Florida and placed a Maine vacation home in an LLC. When a caretaker was injured, they faced significant out-of-pocket expenses because the LLC wasn’t listed as an insured entity.
Solution: After making structural changes to your estate plan, verify that the relevant entities—trusts, LLCs, or otherwise—are properly named on all applicable insurance policies.
4. Insufficient Coverage for Unique Home Features
Historic homes or those built with rare materials and unique architecture can present unexpected insurance challenges. For example, a couple purchasing a historic mansion with rare pecky cypress woodwork discovered too late that their insurance didn’t cover the high replacement costs of these unique materials after a fire.
Solution: If your home has distinctive features or uses specialized materials, work with a high-value insurance provider who understands the complexities of insuring such properties. They can appraise and properly insure these unique aspects, potentially saving you from high out-of-pocket rebuilding costs.
5. Underinsuring High-Value Personal Assets
For families with high-value collections of art, automobiles, or jewelry, it’s common to assume that standard homeowner policies provide sufficient coverage. Unfortunately, most standard policies aren’t designed for high-value collectibles. Imagine a California couple who collected valuable art over 30 years but lacked updated appraisals and individual insurance for these items. When a piece was damaged, they learned too late that their policy fell short of covering its value.
Solution: Conduct regular appraisals of all valuable items and consider scheduling each piece under a specialized policy. A tailored art or collectibles policy ensures that these items are insured for their true worth, usually with no deductible.
Take Action: Protect What Matters
A comprehensive approach to wealth management includes ensuring the proper protections for your home, properties, and high-value assets. Consider a thorough insurance review if you suspect your current policies may have gaps or fall short in coverage. Protecting tangible assets in line with their value can help preserve your legacy and safeguard your family’s financial well-being for generations.
If you’re uncertain whether your coverage is adequate or feel it’s time to reassess your protections, contact a qualified wealth advisor who can help identify and address these vulnerabilities. Remember, safeguarding your home is as essential as protecting your portfolio—about peace of mind, security, and long-term stability.
Insights from John J. Bowen Jr. inspired this blog.
