Most discussions of insurance and estate planning focus on the value of life insurance to your heirs. Not this one. Instead, let’s consider insurance to protect your income and assets now, and to shield your executor later.

What happens if you’re in a car accident with serious injuries or death – and it’s your fault? Expect to be sued, and to pay a large judgment. Every driver is at risk of losing bank accounts, stocks, bonds, mutual funds, rental property, and other non-exempt assets to a lawsuit.

In Texas, you may keep your homestead, pension, retirement accounts, annuities, and life insurance. However, cash distributions are not exempt, and may go to the alert creditor. You may have substantial non-exempt assets, but what good are they if you cannot spend them?

As a rule of thumb, carry liability insurance equal to your non-exempt assets plus five to ten years of income. Suppose you have a home, an IRA, a modest checking account, and $300,000 in CDs. The home and IRA are exempt from creditors’ claims. The CDs are not. That suggests at least $300,000 in liability insurance. If Social Security and IRA income total $50,000 a year, another $250,000 to $500,000 in liability insurance is indicated. Even someone of modest means may want $500,000 to $1 million in liability insurance.

The typical automobile or homeowner’s policy offers no more than $500,000 in coverage. However, your agent can often provide an inexpensive umbrella policy from the same carrier with limits of $1 to $5 million, which is more than enough for most people.

Suppose you stop driving, pay off the mortgage, and die, judgment-free, without any liability insurance. Who cares at that point? Your executor should. An executor is a fiduciary, with the most dangerous, thankless task known to the law. They must collect all your assets, pay all your debts, distribute the remainder to your beneficiaries, and make no mistakes. As one wag summarized it, “Whatever happens, it’s the executor’s fault.”

Both liability and property insurance will go a long way to protect the executor, and, ultimately, your heirs. New executors should review the estate with an insurance agent. Existing policies may be adequate. If not, the executor may obtain insurance at the estate’s expense. Better though, that you yourself review your insurance, and develop a plan to protect yourself in retirement. Doing so minimizes everyone’s risk, and leaves one less task to be done when you’re gone.

Not long after I first published the above advice, I started getting the calls: “I asked my agent for a $5 million umbrella policy, and he won’t give it to me.” “My agent wouldn’t tell me how much insurance I really need.” “My agent says I probably have enough insurance.”

These answers make sense. An insurance agent is not your agent; they are an agent for an insurance company, which limits the umbrella policy the typical agent may offer to $3 million. Larger, much larger policies are available, but not from this agent.

Insurance agents do not have a duty to advise, and are not obligated to inform the insured that coverage is inadequate or overpriced. The second agent, who refused to state whether coverage was adequate, knew his or her limits and communicated them honestly. The third agent, who told the client their insurance was adequate, was unusual. Most agents will not express an opinion.

My clients are low risk but high net worth, often $2 to $7 million, and are best served by an insurance analyst, sometimes called a private risk manager, that can be more proactive.

An insurance analyst tends to be an independent agent, representing several insurance companies. Professional designations are common, e.g., Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), Associate in Risk Management (ARM), or Certified Risk Manager (CRM). Insurance analysts carry errors and omission insurance, in case of loss to the client caused by their negligence. The profile client has an expensive home, domestic employees, watercraft, a farm or ranch, art or other collections, or alternate ownership structures (trusts, LLCs, family limited partnerships).

Like “mere” agents, insurance analysts’ compensation comes exclusively from the insurer. However, the competition for wealthy clients, access to multiple insurers, and the greater overall compensation per client leads to fuller disclosure, more robust advice, and better if not cheaper insurance.

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