UPDATED: Mar 13, 2020
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High net worth individuals have different needs when it comes to auto insurance.
How much car insurance coverage do you need as a high net worth individual? How much liability coverage or umbrella coverage should you buy? Today, we’re explaining everything you need to know about how much auto insurance you need according to your level of wealth.
Why High Net Worth Individuals Need More Auto Insurance
Let’s say a high net worth individual and a low net worth individual are driving the same car on the same road. Why does the high net worth individual need more auto insurance coverage?
Put simply, the high net worth individual has more to lose.
Let’s say you cause an accident. You messed up, and you are 100% at fault for the accident. You hit a minivan with a family of five inside. All of them are injured and require significant hospital treatment.
As the at-fault driver, you are liable for any damages caused to other parties. You are required to pay for the hospital bills, lost wages, vehicle damage, and other expenses incurred by the injured parties.
Let’s say the total comes to $300,000. You are required to pay $300,000 to the injured parties to make them whole again.
The low net worth individual only has $20,000 in assets. His car insurance covers his liability up to the limits of his policy, paying $100,000 to the injured parties in total. The low net worth individual needs to pay the remaining $200,000 out of pocket – but he only has $20,000. The individual liquidates all assets, then declares bankruptcy.
The high net worth, individual, meanwhile, has over $5 million in assets. Her car insurance covers the first $100,000 owed to the injured parties. Then, she is required to pay the remaining $200,000 out of pocket. She has the assets to cover the liability, so she cannot declare bankruptcy.
High Net Worth Drivers May Face Greater Scrutiny After an Accident
There’s another reason why high net worth individuals have more car insurance: they may face greater scrutiny after an accident.
Let’s say an A-list celebrity is driving home drunk from a party in Hollywood. He hits and injures a pedestrian. That pedestrian (and his lawyer) may treat this situation differently than if he was hit by a drunk driver coming home from a minimum wage job. The celebrity has more to lose.
In many cases, it’s not worth it to sue a lower net worth driver. The lower net worth driver has fewer assets to seize in a lawsuit. A pedestrian might win a lawsuit against a driver and be awarded $500,000 in damages – but the pedestrian will never see the money because the lower net worth driver will simply declare bankruptcy.
On the flip side, a lawsuit against a high net worth individual could absolutely be worth it. There are more assets to target in a lawsuit.
High Net Worth Drivers Have Different Needs After an Accident
There’s one more reason why high net worth drivers have different insurance needs: they have different needs after an accident.
Let’s say an affluent driver collides with an uninsured motorist. The other driver has no car insurance coverage, so any reimbursement must come from the affluent driver’s own insurance company – like your uninsured motorist liability coverage.
Typical uninsured motorist coverage may cover only $50,000 to $100,000 in expenses after an accident.
An affluent driver, however, may have considerably higher expenses. If the affluent driver cannot work, for example, then they might lose more money than, say, someone working a minimum wage job. If the affluent driver cannot pay the mortgage or rent on a $2 million home, then the uninsured motorist coverage will quickly be used up.
Similarly, a high net worth individual may drive a car that is more expensive to repair. Replacing the car door on a Ferrari is going to cost more than replacing the door on a Chevy.
How Much Car Insurance Do I Need as a High Net Worth Individual?
There’s no specific amount of liability insurance we can recommend to a high net worth individual. You need to consider your own financial picture and aversion to risk, then decide on the right car insurance for your needs.
Typical car insurance carriers offer liability limits of $500,000 to $1 million. This is adequate for the average driver wanting to stay protected against the majority of situations.
Higher-end car insurance, however, can raise liability limits as high as $2 to $5 million – if not higher. A high-end car insurance policy may have bodily injury liability limits of $2 million, for example, and property damage liability limits of $500,000.
Consider an Umbrella Policy
Umbrella coverage is popular among high net worth individuals. With umbrella coverage, you can raise your liability limits by a considerable amount compared to an average auto insurance policy.
Umbrella coverage can easily add millions of dollars onto your liability coverage, for example, ensuring you stay protected against a wider range of circumstances.
Other Things to Consider with Car Insurance for High Net Worth Individuals
Higher Deductibles: Higher-end insurance policies typically have higher deductibles (over $1,000). This keeps costs reasonable, but it also means you’re “self-insuring” for many smaller claims. If your passenger door is damaged and has $900 in damages, then it’s not worth it to make a claim.
Higher Rental Car Reimbursement: A high net worth individual may not want to rent a Ford Fiesta when her car is in the shop. Higher rental car reimbursement coverage allows her to replace the damaged vehicle with something comparable.
Stated Value Clauses: Some higher-end auto insurance policies have stated value clauses. With a stated value clause, the driver and the insurance company agree on the stated value of a vehicle. If the car is declared a total loss, then the insurance pays this amount instead of the current market value.
You don’t have to be a high net worth individual to consider higher car insurance liability limits. If you own a home, for example, then your home could be seized after an at-fault accident. Consider your financial needs and aversion to risk, then decide on the right car insurance liability limits for your needs.