Gauging clients’ need for insurance beyond the house and car

Clients know that it is necessary to buy homeowners insurance and car insurance, but too many leave it at that.

Financial advisers have an opportunity to educate them about other kinds of coverage, some of which are surprisingly inexpensive and all of which they may need desperately if disaster strikes, according to experts.

Claudia Wetteland, a senior vice president at Ace Private Risk Services, said that a recent poll of about 600 insurance agents showed that the No. 1 insurance problem with high-net-worth individuals is their lack of liability coverage.

Even modest-income families can get sued if a neighbor’s kid hurts himself on a backyard playground.

And for the high-net-worth, the liability issues are legion: “Wealthy people have lifestyles with risk. They have pools. They entertain a lot. They have snowmobiles and Jet Skis,” Ms. Wetteland said.

Also, merely being wealthy carries risk for clients, as people know they have deep pockets, she said.

Fortunately, experts pointed out, insurance solutions are inexpensive and scalable. Umbrella policies are available in denominations of $1 million, with costs starting at just a few hundred dollars a year.

Just 12% of U.S. households have an umbrella policy, according to Ms. Wetteland, so there is a lot of room to help your clients. She recommended that advisers put clients in touch with an agent with whom they can work to meet their risk needs.

The wealthy also have domestic employees, such as nannies, housekeepers and chauffeurs.

They will need employee practices liability insurance, according to Jim Fiske, a vice president at Chubb & Son Inc. He noted that it covers clients if they are sued for mistreatment, for example.

“And consider [directors and officers] insurance,” Mr. Fiske said.

Such policies are most commonly seen in for-profit corporations, but it is just as important in non-profits.

“What if your client is on a co-op board and gets sued if a child hurts himself in the co-op’s playground?” Mr. Fiske said. Not only the co-op, but each board member, could be cited in a suit, he said.

It is the same story for a charity, Ms. Wetteland said. The affluent often sit on charitable boards, and a dismissed employee can sue a board member just as easily as if he or she could bring suit against a Fortune 500 company.

Advisers also need to take a look at a client’s home to see if it is sufficiently insured, Mr. Fiske said. They also need to check that in case the house is completely destroyed, it can be rebuilt for what the policy covers.

Mr. Fiske advises clients to have policies that promise full replacement coverage so that all reconstruction costs will be covered.

Next, advisers should look at what the standard policies don’t cover, experts said.

Flood insurance is a key issue, according to Lisa Lobo, vice president of underwriting for consumer markets at The Hartford Financial Services Group Inc. Like many homeowners, clients may wrongly assume that a standard homeowner policy covers floods, she said.

Another myth, Ms. Lobo said, is that only those in a few dangerous flood zones need flood insurance.

“But there are storms, melting snow, hurricanes” — all of which can lead to tremendous damage, she said.

However, government-backed flood insurance is available through major insurers, and for a low-risk area can be as little as $100 a year. Flood insurance often has a different deductible schedule from the standard homeowners policy, so advisers should read the fine print, Ms. Lobo said.

For those near fault lines, earthquake insurance is also recommended. It will cover the earthquake itself and resulting landslides, Ms. Lobo said. Most insurers offer it as an endorsement, and it too will likely have a different deductible than the main policy.

Advisers who work with clients on such riders should evaluate the deductibles themselves, said Todd Rockefeller, a partner in insurance agency DeRosa Rockefeller Sohigian & Werdal Inc.

“Consider raising the standard homeowners policy deductible to $2,500 or more,” he said. “Pay the small stuff out-of-pocket so you don’t have to bug the company with small pieces.”

Some policies waive the deductible entirely in cases of large payoffs, about $50,000 or more, Mr. Rockefeller said.

After the house, advisers should consider what is in it. Most homeowners policies have low maximums for jewelry and artwork, Ms. Lobo said.

Clients should get jewelry and artwork appraised.

Mr. Rockefeller suggests looking for a policy with a market valuation clause that has the insurer cover a piece of jewelry for up to 150% of its assessed value. It is essentially a built-in appreciation clause.

As for cars, a standard policy works for most vehicles, but clients with luxury or classic cars will need to seek out a specialty company.

“At The Hartford, we have a limit of $150,000 on vehicles,” Ms. Lobo said. So if a client has an Aston Martin, the adviser needs to pay special attention.