An Interview With Sarmad Naqvi: 5 Common Mistakes Made When Insuring High-Net-Worth Individuals And Families
During my career, I’ve had the opportunity to meet and interact with some very knowledgeable and interesting individuals. No matter their industry, they all have interesting stories to tell and valuable insight to offer. So, I decided to sit down and interview a few of them. Over the next couple of months I will be sharing an interview each week.
This week, I met with Sarmad Naqvi, who is a Private Client Advisor for McDermottCosta in San Leandro, CA. Sarmad works with high-net-worth individuals and families and has seen a lot in his 15-year career. Our discussion centered on the five most common mistakes that are made when insuring high-net-worth people and their families.
Nikole: It’s great to see you again, Sarmad, and congratulations on reaching 10 years with McDermottCosta!
Sarmad: Thank you.
N: We have a lot to talk about, so why don’t we jump right in? You’ve spent the vast majority of your career in the insurance industry, but you seem to have really found your niche working with wealthier clientele. What would you say are some of the biggest mistakes that are made when insuring those types of clients?
S: I would have to break it down into 5 main categories: Kidnap & Ransom, Employment Practice Liability, Actual Cash Value vs. Agree Value for auto insurance, Blanket/Schedule Personal Property and, finally, Liability—mostly Umbrella Insurance/Personal Excess.
N: What exactly is Kidnap and Ransom Insurance?
S: Kidnap and Ransom Insurance (K&R) is designed to minimize the financial impact of kidnapping, extortion & illegal detention and—most importantly—to facilitate a safe return of the insured or insured’s family.
N: Why would somebody want to get this type of coverage?
S: Well, it’s estimated that there are between 12,500 and 25,000 kidnappings a year worldwide. Furthermore, it appears that only ten percent of kidnappings are reported. Wealthier individuals are a very popular target for kidnapping and ransom.
N: Who needs it?
S: Anyone can get it, but if the insured is recognizable or if a simple internet search can reveal the insured’s relative net-worth, I would highly recommend getting this type of coverage.
N: How about Employment Practices Liability Insurance—can you explain that to people who aren’t familiar with what it is?
S: Basically, Employment Practices Liability Insurance (EPLI) protects the insured from employees alleged discrimination, wrongful termination, harassment and other employment-related issues.
N: Why would someone want to get this coverage and who is this geared towards?
S: Defense cost of an EPLI claim can top out at $300,000 (payout, if found guilty, is not included) and can take 18 to 24 months to resolve. The top four states for EPLI claims are New York, California, Texas, and Florida. The people who want to get this type of insurance are those who have a full-time domestic staff. The most common examples are nannies, personal assistants and gardeners.
N: Interesting. Yeah, I can see how something like this would be invaluable to people with these types of employees. What about the third type of insurance: Actual Cash Value vs. Agreed Value Auto Insurance?
S: The easiest way to understand this is that Actual Cash Value (ACV) is the fair market value of the insured’s vehicle at the time of loss. Basically, it’s the price a person could have expected to make if they had sold it before the accident.
Agreed Value, on the other hand, is a stated amount of money given to the insured for the total loss of their vehicle.
N: Ok, how exactly does someone decide which type of insurance is better for their vehicle?
S: For an “average” or typical type of car, I would go with Actual Cash Value insurance. For more expensive or exotic cars, I’d go with Agreed Value.
N: I’m sure everyone reading this would love to be in a situation where they’d want to buy Agreed Value insurance. Ok, now onto Blanket/Scheduled Personal Property. What’s the problem with the standard personal property on homeowners insurance?
S: All homeowner policies have sub-limits on any/all items that appreciate in value over time. The best examples of this are jewelry, fine art, wine and silverware.
There are two solutions you can choose from:
Solution One is a Blanket Limit. A Blanket Limit provides a chosen dollar amount of coverage for one defined personal property category. The individual item limit may be adjusted as well, but this solution is best when the insured has many small items they want to protect.
Solution Two is for Individual Scheduled Items. An individual schedule is the broadest form of coverage, but also the most costly. Each personal property item is identified with a description and in many cases an appraisal. No deductible applies, and often the company will pay 150% to value to replace the item. This solution is best for expensive single pieces of personal property.
N: Ok! And, finally, we have Liability Insurance; specifically, Umbrella Insurance and Personal Excess. Could you explain these?
S: Of course. Liability insurance is the number one area in which your clients are underinsured. Most high-net-worth clients do not have enough liability insurance to cover their net-worth if they are involved in a lawsuit.
N: What is at risk if the insured is involved in a lawsuit?
S: All real estate owned, business owned, future income, personal property, investments and cash in the bank.
N: How much liability should the insured have?
S: Enough to cover their net-worth
N: How can you help your client?
S: Any time your client increases their net-worth, I significantly recommend they get more liability insurance.
N: Well, I think that just about wraps it up. Thank you so much for your time Sarmad!
Sarmad Naqvi is a Private Client Advisor for McDermottCosta insurance brokers. Sarmad works with affluent individuals and families in the San Francisco Bay Area to protect their tangible assets and personal wealth. To find out more, please visit www.mcdermottcosta.com or contact Sarmad at SarmadN@mcdermottcosta.com or (510) 590-0635.
Nikole Mackenzie is the owner of Momentum Accounting. Momentum Accounting provides outsourced bookkeeping, controller/CFO services and accounting technology support to small businesses and high net-worth individuals. To find out more or to get in contact with Nikole, please visit momentumcpa.com and follow us online.