Top 3 Risk High Net Worth Families Take Without Knowing It
You could be one car accident away from bankruptcy court, even if you don’t live paycheck to paycheck. In a previous article, I explained how many people would not be completely protected by their current insurance policy if they found themselves up against the Wisconsin Wrongful Death Statute. For high net worth individuals and families with more assets to lose, the stakes go higher.
For example, if you’re ruled at fault for a crash that resulted in the deaths of a small vanload of children returning from a weekend trip, you could at minimum be responsible for paying out $2.2 million. With the potential of other judgements, like medical and funeral expenses.
1. Your LLC Will Not Protect You
A limited liability company (LLC) is one method people use to protect their assets because it transfers ownership of valuable property, like cars and real estate, to a business entity. You don’t technically own it, so it’s protected from creditors, right? No. In the eyes of a bankruptcy court, this stake in the business entity has a dollar value and that makes it vulnerable if you file for bankruptcy. The court might not be able to seize the LLC-owned rental property, but it can take the value of your rental property from you, personally.
2. The Elusive Correctly Written Insurance Policy
I frequently witness other agents insure their customers’ LLCs and trusts as an “Additional Insured” on the customer’s personal home insurance policy. This is almost always flatout wrong because the LLC or trust only receives vicarious liability. This means very limited protection. If the LLC or trust is the sole defendant in a lawsuit, the insurance company will most likely not pay anything. To give the LLC and trust the same benefits of coverage as you personally, the LLC or trust needs to be listed as a “Named Insured.”
3. Umbrella vs. Spaghetti Strainer
The days of a $1,000,000 umbrella policy being enough are long gone. Medical costs continue to rise and the potential awards to claimants suing for loss of companionship under the Wisconsin Wrongful Death Statute are steep. The more assets you have to protect, the higher the umbrella policy limit you should consider. Even people who do not have a lot of assets now should consider their future, because liability lawsuits can not only seize your current assets, they can tap into your future income as well. And again, it is important any LLC or trust you have are listed as “Named Insureds” on the umbrella policy, not “Additional Insureds.”
Know Thy Bullseye, or have Someone Watching your Back: I conduct personal risk assessments every day and almost every week I come across a family who didn’t know how big the target on their back was. I uncover all kinds of critical exposures. For some people, if they can check a box that says “has any insurance” they think they’re set. Or maybe another insurance agent didn’t provide a solid explanation of their overall risk and all the strategies at play.