In my years of working with successful business owners and high-net-worth individuals, I’ve noticed that even the most financially savvy can be caught off guard by sudden shifts in the market. Recently, one such shift has been creating waves across the country, threatening financial plans and leaving many scrambling for solutions: the dramatic rise in homeowners insurance premiums.
A Wake-Up Call Over Lunch
Last week, I was having lunch with a colleague – a respected attorney in our community. He had just finished meeting with a client who had received shocking news: his homeowner’s insurance premium had increased by 60% year-over-year. This wasn’t a modest home with minimal coverage, but a substantial property owned by a successful business professional who had never filed a claim in 15 years of ownership.
The most concerning part? This successful, financially sophisticated individual had no strategy in place to deal with this unexpected increase. And he’s far from alone.
A National Crisis Unfolding
What we’re witnessing isn’t isolated to any single region or type of property. Recent reporting from the Wall Street Journal has highlighted how homeowners in states like Oklahoma are seeing premiums skyrocket, with many facing increases of 60% or more in a single year.
USA Today has gone so far as to label the situation a “homeowners insurance crisis,” affecting states across the nation regardless of their traditional risk profiles. Even more surprising, Business Insider research shows that these increases aren’t limited to coastal areas prone to hurricanes or western states with wildfire risks – they’re hitting the Midwest, Great Plains, and Heartland just as severely.
What’s Behind the Surge?
Several factors are converging to create this perfect storm:
- Climate change impacts: More frequent and severe weather events are occurring in areas previously considered low-risk.
- Inflation in construction costs: Labor shortages and supply chain disruptions have dramatically increased the cost of home repairs.
- Reinsurance market changes: The insurance that insurance companies buy has become more expensive, with those costs passed on to consumers.
- Market consolidation: In many areas, insurance carriers are pulling out entirely, reducing competition and driving up prices.
For high-net-worth individuals with substantial assets to protect, these increases represent more than just a budgetary inconvenience – they signal a need to reassess their entire risk management strategy.
Strategic Approaches to Higher Premiums
If you’re facing premium increases, several approaches can help manage the impact:
Restructuring Income Streams
For those in or approaching retirement, creating dedicated income streams to cover variable expenses like insurance can provide stability. This might mean allocating specific investment accounts or dividend income to cover these increasing costs without disrupting your broader financial plan.
Integration with Business Planning
Business owners may find opportunities to create efficiencies between personal and business insurance planning. Depending on your situation, certain business structures might offer advantages in managing these costs.
Comprehensive Financial Plan Review
When a significant expense category increases by 50% or more, it necessitates a holistic review of your financial plan. This might mean reprioritizing other expenses or adjusting investment strategies to accommodate the new reality.
What I don’t recommend is reducing coverage to save money. In today’s environment of high repair costs and increased litigation, being underinsured represents one of the greatest threats to your financial security.
The Protection You’re Probably Missing: Umbrella Insurance
While addressing rising homeowners premiums is important, there’s an even more critical gap in many high-net-worth individuals’ insurance portfolios: inadequate umbrella coverage.
Standard homeowners and auto policies typically max out at a low level of liability protection. For someone with substantial assets, this creates dangerous exposure.
Consider these scenarios:
- Your teenage driver causes a serious accident with multiple injuries
- A guest suffers a severe injury on your property
- Your dog bites someone who then pursues litigation
Any of these common situations could result in claims far exceeding standard policy limits. And if you’ve accumulated wealth, you become a natural target for larger claims.
How Much Umbrella Coverage Is Enough?
A good rule of thumb: If your net worth is $20 million or less, your umbrella policy should match your net worth. For those with greater wealth, specialized coverage structures become necessary.
The cost is surprisingly reasonable relative to the protection provided. A typical $5 million policy for a family might cost around $1,000 annually. Even for more complex situations – like a family with multiple properties, vehicles, and teenage drivers – a $10 million policy might cost approximately $5,000 per year.
As one client aptly put it: “It costs less than putting an attorney on retainer to defend you in the event of a suit.”
Protecting What You’ve Built
The financial landscape is changing rapidly, and these insurance trends represent a significant shift that requires adaptation. What worked in your protection strategy five years ago may be insufficient today.
I’ve seen too many successful individuals spend decades building wealth through smart business decisions and investments, only to leave it vulnerable because they haven’t updated their protection strategy accordingly.
Remember the attorney’s client I mentioned? After being caught off guard by the 60% premium increase, he worked with a specialist to restructure his coverage. He increased his deductibles to manage premium costs while adding more comprehensive umbrella protection. Most importantly, he integrated these changes into his overall financial plan to prevent future surprises.
Moving Forward
As you consider the impact of rising insurance costs on your financial picture, I recommend three key actions:
- Review your current coverage to identify gaps and ensure adequate protection
- Develop strategies to handle premium increases without compromising your financial goals
- Evaluate your umbrella coverage relative to your net worth and risk profile
The time to address these issues is before you receive a shocking renewal notice or, worse, face a claim that exceeds your coverage limits.
For high-net-worth individuals, proper insurance planning isn’t just about managing expenses—it’s about protecting the wealth you’ve worked a lifetime to build.
Would you like to discuss how these insurance trends might affect your specific situation? Contact our office to schedule a consultation. In the meantime, subscribe to our blog for more insights on protecting and growing your wealth in today’s changing financial landscape.
