What Kind of Insurance Do High Net Worth Individuals Need in CT?

The term ‘millionaire’ once used for wealthy people sounds almost quaint today. Today, a rich person is known as a high-net-worth individual (HWNI), an acronym frequently used in the financial sector to denote a substantially wealthy individual or a household. Given their assets and the financial complexities they are faced with, no regular insurance policy can cover the needs of high-net-worth individuals. They need a high net worth individual insurance policies custom-tailored to cover their property, wealth, and legacy.

In the current list of the U.S. states with the most Billionaires in 2021, Connecticut stands among the top ten with a combined net worth of $54.5 Billion. However, when it comes to investing in insurance, unfortunately, a significant number of HNWIs do not view it favorably, both in CT and nationwide. One of the main reasons is that many HNWIs are unaware of the importance of the assistance of seasoned insurance experts and the need for a personalized high net worth insurance policy designed specifically to cover their unique financial needs.

In this regard, this article intends to discuss everything you need to know about the kind of insurance high net worth individuals need in CT, identifying the unique set of risks associated with high net worth and the kinds of high net worth insurance policies in CT.

High Net Worth Individual (HNWIs): Definition

The commonly quoted figure to be qualified as a high-net-worth individual in the U.S. is at least $1 million in liquid financial assets. This figure excludes personal assets, such as a primary residence, money held in bank or brokerage accounts.

There’s no legal definition of an HNWI, but the threshold generally used for them is to include liquid assets only, excluding personal assets. Thus, an individual who owns liquid assets of $1 million or more is considered a high-net-worth individual.

 

How Are High Net Worth Individuals Categorized in the U.S.?

High net worth individuals are further classified into three categories by professionals in the financial sector, based on their wealth:

• High-net-worth individuals (HNWIs) with liquid assets valued between $1 million and $5 million
• Very-high-net-worth individuals (VHNWIs) with liquid assets valued between $5 million and $30 million
• Ultra-high-net-worth individuals (UHNWIs) holding more than $30 million of liquid assets
• Sub-high-net-worth individuals (sub-HNWIs) with liquid assets worth more than $100,000 but less than $1 million

 

Insurance for High Net Worth Individuals

 

As your business grows, your finances and interests grow, and so do your risks. HNWIs are faced with complex financial protection issues which require them to invest in high-net-worth insurance services and the assistance of seasoned financial experts.

No regular any insurance policy can cover the insurance needs of an HNWI. Many insurance companies design high-net-worth insurance policies specifically to meet the needs of HNWIs and their families, which, unfortunately, many are unaware of.

Where on one hand, some HNWIs are unaware of their unique needs, the expectations and specific needs of many HNWIs and families regarding the protection, preservation and transmission of legacy are significantly increasing on the other hand.

They require their managers and suppliers to have in-depth expertise combined with tailor-made services, digital services mixed with human interactions, and broad geographic coverage—all in a changing and constantly evolving geopolitical context.

Let’s discuss some of the causes of this increase in wealth planning needs of high net worth individuals and families!

 

The Needs of High Net Worth Individuals and Families are Changing

 

During the pandemic, and especially over the past 12 months, many concerns were raised, and there is unprecedented volatility in the markets. The daily volatility reached 28% in 2020, according to the MSCI ACWI Index, which was almost three times the level recorded in 2019.

This increase in volatility created a desire among wealthy people for more involvement in the management of their wealth, which involves making investment decisions in particular. Indeed, COVID-19 has been a real catalyst for this awareness among the HNWIs, prompting them to reassess their long-term wealth and estate planning plans.

The greater need for asset protection is the result of the constantly changing economic dynamics. There is a greater need for international mobility and portfolio diversification through alternative assets among HNWIs. Personalized wealth planning solutions tailored to the specific needs of high net worth individuals are becoming the norm.

Investors ask their advisers to design agile and innovative solutions that make it easy to build investment portfolios that are flexible and as diverse as possible. Also, these solutions must be adaptable to regulatory changes over the long term, notably with maximum transparency in terms of costs and asset administration.

In addition, the dynamics and structures of the modern family are becoming significantly more complex. Divorces, blended families, members scattered around the world, etc., all of this contributes to increasing financial complexity and reminds us of the importance of re-examining our wealth and estate planning.

With most business activities and interactions with customers to be conducted virtually during the global lockdown, the financial sector is undergoing a rapid digital shift. This development has also revealed the effectiveness and benefits of digitization, a factor of operational excellence in this sector. Given the significant number of high net worth individuals who are mobile internationally, digitized connectivity of their assets is no longer an option. Above all, this portability must be perfectly combined with human expertise and relationship management in order to offer highly personalized solutions.

At the most fundamental level, service excellence remains a key factor in customer retention. Suppliers and managers must be able to offer a perceptible quality of service, which meets customers’ expectations in terms of administrative assistance, individualized, detailed and accessible reporting and commitment.

Above all, it is essential to remember that despite the changes in the world, private heritage remains an eminently personal and emotional subject. Often, wealthy clients have accumulated their wealth over generations and/or through hard work and at the cost of much effort. With these inherited assets comes a sense of responsibility, so it’s about protecting them.

The volatile and unpredictable nature of the global economy has rekindled the desire for stability, creating needs that are as manifold as they are sophisticated. Far from curbing it, the pandemic has had the sole effect of reinforcing the demand for tailor-made wealth planning solutions.
In consideration of the above reasons, let’s discuss the kinds of insurance high net worth individuals need in CT.

 

Insurance for High Net Individuals

 

As said above, high net worth individuals are the ones with liquid financial assets valued at $1 million or above. In spite of the pandemic that affected every sector worldwide, statistics show that the net worth of HNWIs grew over the past 12 months. In addition to preserving their wealth as much as possible by staying on top of the tax laws, insurance for HNWIs is another area unique to them.

Unlike an average American family that buys insurance for their home and auto coverage, an HNWI needs a personalized insurance that protects their exclusive property, in addition to their home and cars. HNWIs have some distinctive possessions that they must consider insuring, and for that there are different types of insurance protection available for them. Let’s discuss them!

 

Kinds of Insurance for High Net Individuals in Connecticut

The three basic types of insurance that every adult must include life, health, and disability insurance. However, HNWIs have to look at them differently when it comes to making decisions about purchasing each of these.

 

Life Insurance for HNWIs

Life insurance secures the financial future of an individual’s family after their death. In the case of HNWIs, the main concern is the passing of their wealth down to their family, which means reducing the estate tax bill, a tax imposed on an individual’s wealth at the time of their death.

Currently, estate taxes are imposed by twelve states, with Washington State having the highest estate tax top rates nationwide. Starting in 2020, Connecticut (CT) imposed estate taxes only on estates that exceeded $5.1 million, an exemption that keeps on increasing each year until reaching the $11.4 million federal exemption in 2023.

Currently, in CT the tax rates range from 7.8 percent to 12 percent depending on the size of the estate and a tax exemption is provided for the first $11.7 million, with the balance of the federal government taxing estate up to 40%. So, an ultra HNWI living in CT can lose a significant portion of their net worth at the time of their death, after exemptions. Therefore, HNWIs must purchase life insurance that is bigger enough to ensure the payment of estate taxes and securing the hard-earned assets from liquidating to pay them.

There are many types of life insurance and non-life or property insurance to consider for high-net-worth individuals. The individual’s choice determines how much to pay in premiums on a regular basis. The simplest formula to determine how much insurance to buy is to take the individual’s current annual income and multiply that sum by the number of years they are expected to continue earning until retirement.

For example, let’s say a 35-year-old surgeon makes $ 1 million per year. If the average lifespan in your country of residence is 70 years, you can expect to make $ 1 million per year for another 35 years and be insured for $ 35 million. Since your earnings can be expected to increase with each passing year, you can also predict your future earnings based on expected annual increases. Using the straight-line method, you can start at a point where your income reached a level where it became an HNWI and then plot the expected growth trend for the remaining productive years.

This simple method also applies to any business owned by an HNWI. How much your business generates in annual earnings on average, and how many years can you expect to own that business until retirement determines its insurable value. In addition to the expected income, your business’ market value also determines how much life insurance to buy.

HNWIs should also consider other factors when purchasing life insurance to protect business and personal wealth. There are people whose income powers are limited to a certain number of years, such as professional athletes and stars of show business.

There are numerous tales of professional wrestlers or stars of the National Basketball Association who ended up in the asylum because they did not insure themselves. For every Michael Jordan or Magic Johnson whose wealth continued to grow long after retiring, there are players like Antoine Walker and Allen Iverson who squandered their fortunes and ended up playing in less popular leagues to make ends meet.

A trusted insurance agent or broker can help an HNWI determine what type of insurance is best for them. When taking out a life insurance policy, it is also advisable to go for property insurance, be it mansions, cars, yachts or works of art.

 

Health Insurance for HNWIs

 

Health insurance is important as no one would want to pay their excessive medical bill due to an unforeseen health issue by selling their possessions which they’ve worked hard for. A heart surgery alone can cost up to hundreds of thousands, including the hospital stay and doctor’s bills.

Investing in health insurance is undoubtedly easier for HNWIs than most people, paying the monthly premium for health insurance coverage. It is also supported by the fact that they can lower their premium by selecting a higher deductible.

However, if their health insurance is underinsured, it can cost them more than replacing their assets for paying their medical bills. Therefore, health insurance for HNWIs is different from what other people insure and needs the assistance of an expert in the field of insurance.

 

Disability Insurance for HNWIs

 

Disability insurance, as the name indicates, can protect an HNWI in the event of an illness or injury leading to a long-term disability due to which they can’t work for a long time.

The majority of HNWIs earn the wealth they have through their businesses. They did not inherit their wealth. Their work produces the bulk of their annual income. In the case of an injury that may result in a disability, an HNWI may be able to bear the expenses longer than many people without looking after their business.

But eventually, they will be facing financial issues if this absence due to long-term disability continues. Although HNWIs have more money in savings to pay their bills, those bills can be expensive. They may have more money in savings or more assets they can sell to pay the bills, but those monthly bills for them can be unexpectedly high. They can lower their premiums by selecting longer waiting periods before receiving disability insurance benefits. This longer waiting period option is available to everyone and not just HNWIs.

 

Other Insurance High Net Worth Individuals Need in Connecticut

There are some other forms of insurance that an HNWI needs, working with specialists to meet the best insurers and insurance products designed to meet their unique needs. Below are some of the insurance coverage HNWIs need to buy:

 

Domestic Employees’ Insurance

HNWIs need Domestic Employees’ Insurance to protect themselves from their employee-cooks, nannies, housekeepers, gardeners, or others- if they sue them for damages. Many HNWIs have employees working in their homes and need this type of insurance. They must also purchase workers’ compensation insurance to cover their employee’s lost income in case they’re injured on the job.

 

Insurance for Wine Coverage

The majority of HNWIs have wine cellars having expensive wine collections. A standard home insurance policy is not adequate to cover such a loss. Therefore, they need separate Wine insurance to cover their entire collection in dollar amounts. This insurance is up to a specific limit for each bottle.

 

Fine Art Insurance

Fine Art insurance protects the art and collectibles of clients worldwide: paintings, drawings, sculptures, antique or design furniture, etc. It guarantees coverage in the event of accidental breakage and damage to fragile objects, theft, loss, fire and water damage, and natural events.

In the case of HNWIs, the cost of fine art often exceeds the limit of most standard policies, and therefore, a personalized insurance policy is required. Some insurance companies offer tailor-made insurance policies and include coverage for wine cellars in fine art insurance.

Other insurance for high net individuals in CT includes kidnapping and ransom insurance, Yacht Insurance, Special Auto Insurance, indemnification insurance for HNWIs serving on for-profit and nonprofit boards, etc.

Insurance for kidnap and ransom is rare, but HNWIs can buy it in CT for coverage of such type of situation. A crisis management team of professionals often covers it.

With Yacht Insurance, HNWIs can recover the full replacement cost of their yacht and the crew, construction costs, and their personal property on the yacht.

Many HNWIs serving on nonprofit and for-profit boards can opt for indemnification insurance as a separate policy.

HNWIs have different auto insurance needs from standard car insurance policies. They need auto insurance covering carjacking, specialty cars, high-cost original equipment, etc.

 

Which Insurance Company to Consult in High Net Worth Insurance in CT?

A high net worth insurance policy isn’t simply a standard insurance with higher premiums or higher coverage limits. It is a personalized insurance policy that recognizes the unique needs that HNWIs have and is tailored after the evaluation of associated risks and properties. It is not about simply combining “off-the-shelf” policy terms and conditions.

Traditional insurance plans aren’t enough to replace the lost income of high earners. Going for a standard insurance plan that doesn’t cover your high-value property needs jeopardizes your family’s financial well-being.

Even policies referred to as “high value” are often not up to the standard that meets HNWIs’ needs. Therefore, ensuring high-value assets is a serious business and requires a customized policy to provide optimal protection to an HNWI.

An HNWI may have a luxury home valued at millions of dollars with a private wine cellar, a collection of fine art, a yacht, and other collectibles, all that need special protection in the event of a loss or damage.

Each HNWI has unique needs and is provided a custom-tailored insurance policy for their particular lifestyle, assets, and risks. The limits offered for protection vary from company to company but can go up to as big as $100 million.

An HNWI in CT needs high net worth Insurance for their high-net-worth assets. Most insurance companies in CT offer personalized insurance policies to HNWIs tailored to their unique needs. One way is to bring different coverage areas and needs and tailor a comprehensive insurance solution that offers coverage for everything discussed above, including life insurance.

Eventually, the decision is up to the individual to opt for different high net worth insurance policies that meet their unique needs separately or to opt for a personalized umbrella solution that covers many needs. Therefore, HNWIs also need expert advisors in the field who can assess their risks and unique needs and assist in making the right decision!

Our Final Thoughts

Being one of the wealthiest states in the country, CT is home to many HNWIs with high-value property and a lifestyle that needs specialized protection. There are many renowned insurance agencies in CT having a team of professional experts who assess the risks and appraise the property of HNWIs to offer a comprehensive program that meets all their coverage needs. It is the professional’s job to review any changes in the life of an HNWI that may affect their insurance program and to ensure that there are no gaps in coverage, recommend new personalized products, and negotiate the insurance price.