After working hard to create wealth, ironically many wealthy people do not take out adequate insurance to protect it. This article, which is part of a continuing series on HNW insurance issues, examines the problems with under-insurance.

Many people working in the City and financial services work incredibly hard and diligently on behalf of their clients building up their wealth and at the same time increasing their own net worth far beyond anything that the generation before were able to do. Why then is it that so many still purchase old fashioned insurance policies which do not suit their new situation?

Over the last quarter of a century some insurers have realised that people who have valuable items tend to look after them as if they were not insured and therefore are the best type of risk to insure. As a result you can now find exceptional policies which will cover virtually anything anywhere in the world for very reasonable premiums.

These “All Risks” policies are only truly sold by a handful of insurers who specialise in the design, underwriting and most important of all, the claims handling of such policies.

This last characteristic is what really defines the difference between the ordinary insurer selling personal lines or mid-net worth policies from the high net worth insurer who will have a specialised claims department who will go out of their way to pay a claim both speedily and efficiently. So why do so many people still not take up these policies?

Many up and coming wealth accumulators are working all God’s hours to satisfy their clients’, bosses’ and family’s demands and they do not have the time to look after their own affairs. They are cash rich but time poor.

They are unfamiliar with how to access these policies and are not familiar with how to put together a proposal for the underwriter. It is always better to find an insurance broker who can explain the different policies and advise on insurance valuations, conditions and definitions in such policies.

Many people lack the confidence to go outside their sphere of knowledge and find comfort in only dealing via the web. At this level it pays to establish a rapport between you and your broker who should come and visit you either before you take out such policies or at least soon afterwards.

Many people are still using the first insurance policy they were sold when they bought their first flat in the mistaken belief that all insurance policies are essentially the same. Quite often they will be paying more with big gaps in cover than if they bought a policy tailored specifically for their present circumstances.

Some people are scared to own up to insurers that they now own considerable fine art and valuables in the mistaken belief that it will cost them more to insure. Often with correct valuations and decent deductibles you will find that you end up paying the same amount but with much wider cover.

Under-insurance is a tragedy and gives the client a nasty feeling that he has been mugged. The reason is that in bog-standard insurance policies there is a little understood clause called ‘general average’. This basically states that if the client under-insures then the insurance company will under pay if a claim occurs. In properly designed HNW policies this clause does not exist and replacements almost always are on a “New-for-Old” basis.

Just as people with large amounts of money employ private bankers to enlarge their wealth so wealthy people employ specialist private client insurance brokers to look after and advise them on all aspects of their insurance needs.

These brokers will take the time to understand their clients’ lifestyles and requirements and then design bespoke insurance products to suit their needs. These insurance brokers will be totally transparent with their clients and usually declare any commission they earn and offer to work on a fee basis.

As I say, under-insurance is a tragedy, so HNW individuals should be well advised to consider their cover and act accordingly.