The use of limited liability companies (LLCs) and trusts is on the rise, with nearly a 35 percent increase since 1983, according to the IRS, with much of that growth from high net worth individuals.
Trusts can help clients minimize taxes, avoid probate and ease the transfer of other assets. By incorporating personal assets and liabilities under an LLC, high net worth families can separate themselves from their assets, serving as a shelter for debt, taxes and philanthropic endeavors.
But although the purpose of LLCs and trusts is to limit liability, but the legal entity itself needs protection. It is up to a flexible and experienced agent to make sure that their wealthy clients are receiving adequate coverage. Fireman's Fund Insurance Co. compiled the following tips to help agents assist high net worth clients with their insurance needs.
Click through the following slides to find out more.
Listing an LLC or Trust on an Insurance Policy
There are two options for the listing of an LLC or trust—name insured or additional insured. The liability concerns of the client dictate the listing, but many clients are unsure which is best for their needs.
The major concern is that the additional insured can be held liable for actions or judgments against the named insured.
Ownership of the property determines whether an LLC or trust should be listed as a named or an additional insured on a policy. "If the LLC is the sole owner, it would typically be the named insured, but the policy should also be tailored to provide the LLC owners or members with sufficient property and liability coverage as well," said Kathy Cold, attorney with Holbrook, Akel, Cold, Steifel & Ray.
However, many agents are uncomfortable with LLCs and trusts, and sometimes do not allow policyholders to name these assets on their personal insurance policies. The best solution is for agents to work with the client's attorney and financial planner to resolve any issues and come to the best solution for the client.
Handling a Staff
Some families' homes operate more like a business, with an employed staff assisting in the running and maintenance associated with the household. Homeowners with a large staff may require liability coverage that functions more like commercial coverage, exceeding the limits of their homeowners or excess policy, in order to protect themselves from lawsuits from employees.
LLCs can use employment practices liability insurance (EPLI) to protect themselves from these potential lawsuits, providing greater limits to cover expenses regarding employee rights violations. EPLI protects LLCs and its members against employment-related discrimination, sexual harassment and wrongful termination suits.
The Home is a Business
For some wealthy clients, private homes and properties also function as a revenue generating business. Vacation rentals, vineyards and hobby farms can be some of the ways in which high net worth clients generate additional income.
However, like any business, workers' compensation coverage is necessary, and the home business needs protection for real estate and personal property.
Whether it's an income property generating thousands per week, a low-productivity hobby farm or a full-scale production, agents should assist family-owned operations in establishing solutions that suit the needs of the LLCs, protecting heir assets against property damage, employee injuries, or other losses that may threaten the personal wealth of each LLC member.
Finding the Best Solutions
The agent must help clients find the right coverage for their personal and financial needs. Working with the client's financial planners can be an effective way to collaborate on an account, helping agents to make the most informed decision for clients.
Clients seeking financial and insurance planning look to their agent as a trusted advisor. By working to understand the unique risks associated with the client's wealth and assets, an agent can best determine the limits and terms a client needs. Customizing and ensuring that there are no coverage gaps is crucial in servicing high net worth clients.
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