Are your wealthy clients worried about home invasion, kidnapping or identity theft?
Some insurance carriers include limited identity theft coverage as part of a homeowner's insurance policies. Others sell it either as a standalone policy or as an endorsement to a homeowner's or renter's policy, according to the Insurance Information Institute.
Chubb Group of Insurance Companies has begun offering home invasion coverage as a rider to its homeowner's policy. And industry observers say other insurance companies, such as American International Group, Inc. (AIG) and Lloyds of London, may soon enter the market.
Peter Spicer, a Chubb vice president based in Warren, N.J., says the companies are responding to a spike in consumer interest -- generated by some high-profile cases.
This February, for example, a man pretending to deliver documents invaded the La Jolla, Calif., home of billionaire Ernest Rady. The intruder, armed with a pistol-gripped Taser and a handgun -- bound the 69-year-old Rady, his 66-year-old wife and their housekeeper. After ransacking the house and using the stun gun on Rady, the crook reportedly made off with an unspecified, but not large amount, of cash. He still hasn't been caught.
Is It Worth It?
Home invasion coverage, which is sold as a low-cost rider on a homeowner's policy, may be worthwhile. Department of Justice statistics reveal 1.4 million cases of home invasion in 2005, up from 1.3 million in 2004.
The cost of Chubb's home invasion rider ranges from $70 to $135 annually, depending on the state of residence. It covers up to $475,000 for psychological therapy, temporary relocation, lost salary and security enhancements due to a home invasion, car jacking, stalking and accidental death and dismemberment. It also covers psychological and medical costs related to child abduction and rewards offered to catch perpetrators. The policy does not cover ransom.
For ransom money, individuals have to buy separate coverage for kidnapping and ransom insurance. This type of coverage, Spicer says, typically is purchased by retirees, individuals with inherited wealth and business owners. Many corporate executives already have kidnapping and ransom coverage through their companies.
Insurance companies don't like to talk about ransom insurance because it may draw criminal attention. But the major players in the kidnapping and ransom line are Lloyds of London, Chubb, AIG and St. Paul Travelers, Inc.
Although policies differ slightly, they tend to cover ransom money, transit and delivery costs, consulting fees, judgments, settlements and legal costs, death and dismemberment benefits and related expenses, such as medical costs, personal financial loss and security services.
The average cost of an individual/family kidnapping and ransom policy is about $1,000 per $1 million of coverage, according to the Insurance Information Institute.
Identity Theft
Research indicates that higher-income individuals are more susceptible to identity theft. Still, it's unclear whether the truly wealthy need insurance for this problem.
An October 2006 telephone survey of 5,000 people by Javelin Strategy & Research, in Pleasanton, Calif., found Americans with incomes of more than $150,000 per year are most likely to be victimized. The survey, sponsored by CheckFree Corporation, Visa and Wells Fargo & Company, was released in February 2007.
A total of about 15 million Americans were victimized by some sort of identity-theft-related fraud in 12 months ending in mid-2006, according to Gartner Inc., a Stamford, Conn.-based independent research firm's analysis of Federal Trade Commission statistics.
Gartner pegged the average loss at $3,257, based on an online questionnaire survey of 5,000 people in August of 2006. The survey results were released in March of 2007.
Identity theft coverage as a homeowner's insurance policy rider runs as little as $25 to $30 per year. This coverage helps with crisis resolution; ongoing credit monitoring following a theft; and coverage of actual losses such as loan reapplication fees, notary fees and long distance phone calls. Attorney's fees approved by the insurance company are covered up to $25,000, according to Amanda Welsh, author of Identity Theft Protection Guide (St. Martin's Griffin, 2004).
"The real cost of identity theft for individuals comes from the hours spent explaining away their false debts or criminal history," Welsh says. Lost wages coverage of $1,000 to $10,000, with a deductible of $250 to $500 is of little concern to the super rich.
But do the wealthy need identity theft coverage?
The Insurance Information Institute reports that loss claims due to identity fraud amount to only .04 percent of all payouts on homeowner's insurance policies. The vast majority of identity theft cases involve a charge on a credit card, which can be resolved with a credit card customer service representative, according to the Institute.
Monetary losses due to fraud are not covered. Banks and credit card issuers typically absorb these losses if the individual can prove he was a victim of identity theft.
Nevertheless, Welsh insists that identity theft insurance should be treated like homeowner's insurance.
"You buy home insurance for protection when your entire house burns down, not for a leaky faucet," she says. "In the same way, identity theft insurance shouldn't be purchased for protection against a few bad charges on your credit card but for when your personal information is seriously misused."
Alan Lavine is co-author with his wife, Gail Liberman, of Quick Steps to Financial Stability (Que/Penquin Group, 2006).
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