As a Certified Financial Planner (CFP), one of the greatest risks to your clients’ wealth is not poor investment outcomes.
Why Your Clients Need Umbrella Insurance
No, the single greatest risk is a major lawsuit judgment against your client that takes away all of their wealth.
Unlike market risk, there is very little you can do to eliminate their risk of being involved in a tragic situation with major financial consequences. They are, by nature, unpredictable events.
While you can’t eliminate the risk, you can transfer it to the insurance company through umbrella insurance.
In our discussions with CFPs, we’ve learned umbrella insurance is often overlooked in a financial plan.
Yet, for just a few hundred dollars per year, you can assure your clients won’t lose their life savings if they are involved in a lawsuit.
Ultimately, it doesn’t matter how well you help grow your clients’ wealth if it is taken away due to an accident.
Keep reading to learn more about:
How Umbrella Insurance Helps
Umbrella coverage protects the insured against large legal judgments. It is often a very cheap coverage to add (similar cost to term life) and can save your client millions.
The most common type of umbrella claim is a serious auto accident. While the auto insurance policy provides some liability coverage, it is usually not enough for a wealthy driver who is at fault.
If your client has wealth (or a high salary), they are high risk and a potential target. Why? Because attorneys seek deep pockets.
For example, if there are two similar accidents - one caused by someone with no savings and the other caused by your client - the lawyer wants the case against your client.
If your client has an umbrella policy, the opposing lawyer will often settle for the umbrella policy proceeds because it lowers their costs compared to going to trial and attempting to win more.
Your client also benefits because it is a less stressful process. They aren’t fighting over a $3M vs. a $5M settlement. The insurance company deals with it and pays the claim. No worrying about having to sell the second home to pay the judgment.
Umbrella doesn’t just protect your client. It protects their family. If your client has teenagers and doesn’t have umbrella coverage, an accident where they are at fault can bankrupt your client.
While auto claims are the most common, they are far from the only cause of lawsuits. In many cases, your client’s behavior makes them a greater or lesser risk.
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Signs Of A High Risk Client
What are some signs that your clients have a greater need for umbrella insurance?
Teenagers are a significant risk factor. They are more likely to have auto accidents, more likely to engage in other risky behavior, and can even be liable if something goes wrong while they’re babysitting.
High profile vehicles or a history of speeding tickets can make your client a target if they are at fault in an accident. If your client drives a sports car or luxury vehicle, they need extra umbrella coverage.
Do your clients entertain a lot at home or have a pool, backyard playset, or sports court? These can bring added risk of injury and your clients could be found responsible for overlooking a safety hazard.
Volunteer work can also create risk. Are your clients active in the community? If someone they interact with feels they were mistreated in some way, this could lead to a lawsuit. Even coaching their kid’s sports team can bring liability if a player is injured.
Do your clients have an aggressive pet? Dog bite claims continue to get more expensive and a wealthy person is a target for a claim that they ignored earlier signs the pet was a danger.
If your clients own guns, they are also at higher risk if, for example, a gun is stolen from their home and used to commit a crime. In this scenario, they could be sued for negligence if they failed to properly secure their firearm.
How Much Coverage To Buy
How much umbrella coverage does your client need? There is no right answer. Many people buy an amount equal to their net worth. This may be too little or even too much.
If they buy less than their net worth, it is a bet that the opposing lawyer will decide the umbrella proceeds are sufficient enough that it’s not worth the extra litigation to pursue more.
If your client buys a policy greater than their net worth, they are fully protected but may be paying more for coverage than they would like.
It is also important to understand that, if a client has most of their wealth in their business, this does not mean they need less umbrella coverage.
While one can’t be forced to sell a business to meet a judgment, if they have no other way to pay the award, the best option may be to sell part or all of their business.
Need More Help?
Informed exists to help consumers make smarter insurance decisions. We’re building a next generation insurance company that empowers consumers with insurance insights, intelligence and advisory services.
We believe our mission aligns with CFPs to help ensure their clients have adequate protection.
We can work directly with you to review your client’s needs, together with you and your client, or directly with your clients based on your preference.
In addition to umbrella advice, we also offer complimentary policy reviews for auto and homeowners insurance.
We do not sell insurance and we do not charge a fee for our advice.
Our current focus is to learn how we can best serve discerning consumers like your clients who have unique insurance needs.
If you’d like to learn more about how we can help, feel free to contact us. You can also schedule time here to discuss with us directly.
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