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High-net-worth lifestyle brings liability tripwires

Boat insurance will cover either its replacement cost or a previously agreed upon value in the event of a total loss.

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Wealthy people typically enjoy a lifestyle of luxury, from private jets to cellared collections of Chateau Margaux. But protecting those assets and reducing personal liability requires more than the standard umbrella insurance policies. Should the yacht run aground or the nanny file a lawsuit, specialty insurance can protect against the unexpected.

Here are a few policies to consider.

Secondary homes

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The big trend that Greg Kruk, principal broker with JWK Insurance Brokers Ltd., is seeing with Canadian high-net-worth clients is their need to cover secondary, seasonal homes that are often worth more than the owners' principal residences. A typical homeowner's basic secondary coverage for fire and water damage won't cover the $12,000 mountain bike kept at a $7-million cottage in Muskoka, for instance, or the $100,000 worth of fine art at your villa in Palm Springs. Mr. Kruk encourages clients to do a walk-through and record everything on video to help pinpoint what might need special coverage. If you have regular maintenance contracts or live-in help such as a housekeeper or gardener, insurance rates will be much cheaper.

Personal watercraft

Boat insurance will cover either its replacement cost or a previously agreed upon value in the event of a total loss. Policies generally cover such niceties as emergency towing and onboard personal effects, including those belonging to guests and crew.

Policies might also include damage your boat causes to the marine environment that you're legally obligated to pay for, such as oil spills, and the removal or destruction of your wreck should the worst happen. According to Mr. Kruk, environmental liability has become a massive issue and results in some of the largest claims he sees.

Most important is liability coverage for bodily injury to your boaters and crew. Also, most policies have navigational limits, so make sure your destination is covered before setting sail for the Bahamas. Please note that you're responsible for staying out of unsafe or pirate-plagued waters or your policy could be voided.

Domestic staff

If you have people working on your property – gardeners, chauffeurs, babysitters, housekeepers or private nurses – you need employment practices liability insurance, also known as nanny coverage, to protect against potential lawsuits from disgruntled employees who might accuse you of wrongful dismissal or discrimination. Most policies don't include sexual harassment, so you'll have to negotiate that one with your underwriter.

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This kind of policy doesn't cover bodily or personal injury, so you also need liability insurance and workers compensation for employees in case someone is hurt while working on your property.

Aviation

This insurance isn't just for people who own or operate aircraft. It's essential for travelers who frequently charter privately owned aircraft, whether for business or pleasure. Aviation insurance typically covers both damage to the aircraft itself as well as any liability for injured passengers.

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Fine art and antiques

Custom-made protection for your latest Group of Seven acquisition or Qianlong Dynasty vase is readily available through fine art insurance. The best policies guarantee values, so you know upfront what the company will pay in case of a loss or mishap. Professional appraisals are usually not required on items valued at less than $250,000.

Separate policies for valuable objects such as jewellery, coins and collectibles are also available on a similar basis. Some providers will cover the "mysterious" disappearance of lost or stolen items, meaning you really don't know what happened to it, such as, "I think I dropped my earring in a cab."

"High-value insurance doesn't require proof of theft," says Mr. Kruk. "You said you lost it; we're gonna believe you."

Wine

Policies covering serious wine collections depend largely on their value. A policy can cover specific bottles or the collection in its entirety. Appraisals are usually required only for individual bottles valued at more than $10,000. Insurance providers may also require that you install a low-temperature alarm to monitor fluctuations within the cellar or have security alarms installed at entrance points. Coverage generally includes breakage, in case you're a butterfingers with the Lafite, as well as damage to wine labels, which could affect a bottle's value.

Kidnap and ransom

Kidnapping is a real threat for wealthy individuals or business professionals and their families living in or travelling to less secure countries. Among the places where ransom payments are a popular source of revenue are Mexico and other Latin American countries, the Middle East and some African nations such as Nigeria and South Africa. Coverage may not be available for countries such as Syria, Iran or Afghanistan where advisories against all travel are in effect.

A policy typically covers repayment of the ransom to the family as well as loss of income and medical and psychiatric care. Some policies include a crisis management team of specialists who offer advice and help negotiate the release of your loved one.

Global business travel

This coverage gives international travellers additional protection for medical or other threatening emergencies such as floods, earthquakes or terrorist situations away from home. Coverage can include medical costs or secure evacuation from natural disasters and other dangerous situations. Policies are available for individuals as well as employers.

Additional coverage can include expenses if you are injured or suffer trauma, or your trip is delayed or cancelled. It also covers you if your commercial airliner, boat or bus is hijacked. Separate car-jacking coverage for your personal vehicle is also available.

Adventure and extreme sports

If you're inclined to participate in high-risk sports, from skydiving to running with the bulls in Pamplona, know that regular insurers may reject your claim if you suffer a costly injury while participating in hazardous activities. A worldwide disability policy can protect you, but on top of that you can buy policies to cover an extreme event for a shorter term. It's the same sort of coverage that NHL players buy for two weeks while they participate in the Olympics because they're no longer covered by the NHL's blanket insurance policy for hockey. Be sure to ask the insurer questions about what exactly is covered before you strap on a parachute.

Director's liability

If you accept a directorship, whether it's a paid position or for a non-profit organization, make sure you have the liability insurance to go with it. Directors can be held personally liable for things such as financial losses, wrongful employee dismissal, discrimination or even environmental damage.

Sources: Chubb Group of Insurance Companies, American International Group (AIG) and Greg Kruk, principal broker, JWK Insurance Broker.

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