Becoming the CEO of Your Personal Life –
Becoming the CEO of Your Personal Life –
A Personal Insurance Series: Insuring Your Trust or LLC
December 12, 2019
Private Client Group
When it comes to risk management and insurance, it’s important to apply your business best practices to your personal life as well. All too often, we overlook assessing our risks and updating our insurance when we make lifestyle changes, grow our wealth, and add (or delete) valuable assets. In this series, we will discuss common sense steps that you can take to be an effective CEO of your personal life.
Your financial advisor, accountant, or attorney may advise you to transfer ownership of your home or other property to a trust or limited liability company as a wealth management strategy. These entities can be advantageous for tax purposes and managing your personal liability exposures. When you do transfer ownership to a trust or LLC, it is vitally important to notify your insurance broker so that insurance coverage is extended to both you and the entity.
Who is an Insured?
Your policies always define the named insured — “You, your spouse, or a family member,” for example. In the event of a loss, the insurer will only pay for claims sustained by a named insured as defined in the policy. If your trust or LLC is not added as an additional insured, they are not covered. Ask your broker to add them to your policies; there is usually little or no additional premium.
Claims Scenario—How Will Coverage Apply in the Event of a Homeowner Loss?
A properly endorsed homeowner policy will respond for a property loss to your dwelling (owned by the trust or LLC) and contents (owned by you). For a liability claim — for example, when a guest is injured — a properly endorsed policy will respond if the lawsuit is brought against you, the trust or LLC, or both. If the policy has not been endorsed, there will be serious gaps in coverage. The dwelling (owned by the entity) will not be covered and the trust or LLC will be uninsured for the liability claim.
What Policies Should Include the Trust or LLC as an Additional Insured?
Every policy that covers property owned by the entity should include an additional insured endorsement. This includes homes, rental properties, vacant land, fine arts, automobiles, and watercraft. The entity should be added to your umbrella policy, too.
What Information Will the Insurer Need?
Most carriers ask that you complete a brief questionnaire regarding the purpose of the trust or LLC, who comprises the entity, and the properties owned in the entity’s name. They will also ask if the trust or LLC owns other assets, has any employees, or generates any revenue.
A trust or LLC can be an effective wealth management strategy. However, it’s important to remember the role that insurance plays in your financial planning. If your coverage doesn’t keep pace with transfer of assets to a trust or LLC, you may create serious coverage gaps that undermine your intended protections. Be sure to include your insurance broker as a member of your financial team when you create a trust or LLC.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.
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