Insurance / The Compound Effect
You're Probably Under-Insured (Even If You're Rich)
| 8 min | By Heath J. Harris
The wealthier you are, the more exposed you may be. Discover the most overlooked insurance risks and how to truly protect your assets.
Let us get real: Insurance is not fun.
It is not exciting. It is not sexy. It is not something you bring up at dinner parties unless you are trying to clear the room. But here is the truth: the more wealth you build, the more exposed you likely are.
And most people -- even the wealthy, even the successful, even the "I have a guy for that" types -- are flying blind when it comes to their coverage. At Compound Advisory, based in Annapolis, Maryland and serving clients nationwide through virtual planning, insurance review is a standard part of how we approach comprehensive financial planning.
When Coverage Falls Short: A Hypothetical Example
Consider Dana, a hypothetical composite of clients we have worked with. Dana was a successful practice owner who sold her business for $7.5 million. She had cash in the bank, real estate assets, a clear estate plan, and a conservative investment strategy.
But one thing she had not reviewed? Her insurance.
Then one afternoon, a visitor tripped on her property. The fall resulted in a broken arm, a fractured wrist, and a lawsuit for $2.3 million. Dana assumed she was covered. She was not.
- Homeowners policy: $500,000
- Umbrella policy: $1,000,000
- Shortfall: $800,000
And guess who paid it? Not the insurance company. Dana did -- out of pocket.
Her coverage had not been updated in years. Her umbrella policy was set up when she had far less net worth. No one thought to raise it. No one reviewed it after the sale. No one asked what level of liability she now carried simply by being wealthy.
Because yes -- being wealthy increases your visibility and exposure. If you have money, you have a target. And in today's world, lawsuits do not always come down to "what is fair." They often come down to "what is available."
Insurance Most People Miss (Even Affluent Ones)
Here are four areas where we consistently find gaps -- especially among high-net-worth individuals, business owners, and new retirees:
1. Umbrella Insurance
If you only remember one thing from this post, make it this: If you have assets, you should have an umbrella policy.
Umbrella coverage is extra liability protection that sits on top of your home, auto, and rental property policies. It is designed to kick in when your other coverage runs out -- exactly like in Dana's case.
The good news? It is remarkably affordable. A $5M umbrella policy might cost $500 to $700 per year. And yet, most people either do not have one or are under-insured by millions. We recommend reviewing umbrella coverage annually -- especially after major life or financial changes like a business sale, inheritance, or property purchase.
2. Long-Term Care Insurance
Long-term care is one of the biggest unplanned risks in retirement planning. The numbers are sobering:
- 70% of people age 65 and older will need long-term care at some point
- The average annual cost of care ranges from $60,000 to $120,000+ depending on location and level of care
- It is usually not covered by Medicare
The question is not if you will need care. The question is whether you will pay for it out-of-pocket or protect yourself in advance. Modern long-term care policies are more flexible than ever -- and many include return-of-premium or hybrid benefits so you are not "losing" the money if you do not use it.
At Compound Advisory, we help clients evaluate this based on cash flow, age, health, and family dynamics -- not scare tactics. Here in Maryland and across the country, long-term care costs vary significantly, and the right answer depends entirely on your specific situation.
3. Life Insurance (Yes, Still Relevant)
If you are retired or do not have young children, you might assume you do not need life insurance. Sometimes that is true. But for higher-net-worth families, life insurance can still play a critical role in:
- Estate planning: Covering future tax liabilities so heirs do not have to liquidate assets
- Liquidity: Providing immediate cash for heirs during the estate settlement process
- Equalization: Splitting assets fairly between beneficiaries when assets are illiquid (like a business or real estate)
- Legacy planning: Funding charitable goals or family trusts
In some cases, permanent life insurance can also serve as a tax-efficient asset inside a broader portfolio. It is not for everyone -- but if you have written it off entirely, it may be time to revisit with a fee-only fiduciary who has no commission incentive.
4. Coverage for Lifestyle Assets
Boats. Motorcycles. Vacation homes. Watercraft. RVs. If you have acquired more "lifestyle assets" as your wealth has grown -- great. Just make sure they are appropriately insured -- both for damage and liability.
These assets can create major risk exposure, especially if they are lent out to guests, used seasonally, or stored in different states. You do not want to find out after an accident that your coverage does not apply -- or worse, that it is invalid due to how the asset is titled or used.
Wealth Is Great. Protected Wealth Is Better.
At Compound Advisory, we believe insurance should not be an afterthought. It should be integrated into your overall plan -- just like your investments, your tax strategy, and your estate structure.
We do not sell insurance. But we review it, evaluate it, and help clients understand what they are exposed to -- before a lawsuit, health issue, or accident exposes it for them.
Final Thought: The Best Insurance Policy? Proactive Planning.
You only notice insurance when it is too little or too late. That is why the best time to review it is before you need it.
If you have sold a business, inherited wealth, retired with significant assets, or simply have not reviewed your policies in a few years -- now is the time. We invite you to schedule a complimentary Retirement Clarity Assessment. We will look at the big picture, identify the gaps, and make sure your wealth is as protected as it is well-earned.
Because building it was one thing. Keeping it? That is the real win.
Compound Advisory is a registered investment advisor. Insurance products are not offered through Compound Advisory. We review coverage as part of comprehensive financial planning. All investing involves risk, including the possible loss of principal.