Insurance Coverage Review: Keeping Pace with New Exemptions

Peter Pabich |
Categories
Insurance
Wealth Planning
Estate Planning

With the permanent $15 million estate tax exemption starting in 2026, rising home values, and evolving cyber threats, your insurance needs have likely changed significantly. Let's talk about the coverage gaps most affluent families don't realize they have - and how to fix them before you need the coverage.

 

The Estate Exemption Change: Rethinking Life Insurance

 

With the estate exemption jumping to $15 million per person ($30 million for couples) permanently in 2026, many families who bought large life insurance policies specifically for estate tax purposes need to reconsider.

 

The question: Do you still need that $10 million policy if your estate is now well below the exemption threshold?

 

Consider this:

  • If you bought life insurance primarily to pay estate taxes, and your estate is now fully exempt, that purpose no longer exists
  • However, life insurance can still serve other important functions: income replacement, business succession funding, equalizing inheritances among children, or providing liquidity for estate settlement costs

 

What to review:

  • Term policies you purchased years ago when estate exemptions were lower
  • Whether conversion options to permanent insurance still make sense
  • If cash value life insurance is performing as expected or if there are better investment alternatives

 

For families with $5-10 million estates, you might actually need less expensive insurance now. That's money that could be redirected to other financial goals.

Umbrella Liability: The Most Underutilized Coverage

A general rule of thumb is to hold umbrella liability coverage equal to your net worth, at minimum. However, if your net worth is $15 million and you're carrying a $1 million umbrella policy, you're dramatically underinsured. 

 

Here’s a quick calculation of what “equal to your net worth, at minimum” might look like for you: 

  • Net worth over $1 million: Get at least $2-3 million umbrella coverage
  • Net worth over $5 million: Consider $5-10 million
  • Net worth over $15 million: Look at $10 million+ or excess liability policies

 

The cost? Surprisingly reasonable. A $1 million umbrella policy typically runs $150-$300 annually. Each additional million often costs just $50-$100 more per year. For $10 million in coverage, you're typically looking at $1,500-$2,500 annually - a small price to protect substantial wealth.

What Umbrella Coverage Includes

Beyond auto and home liability, quality umbrella policies cover:

  • Personal injury claims (libel, slander, defamation)
  • Legal defense costs (often excluded from policy limits)
  • False arrest or wrongful detention
  • Invasion of privacy
  • Some policies offer worldwide coverage

Prerequisites to Know

Most insurers require you to maintain minimum underlying coverage before they'll issue an umbrella policy:

  • Auto insurance: Typically $250,000-$500,000 per occurrence
  • Homeowners: Usually $300,000-$500,000 in liability

 

Your base policies will need to be adjusted (and premiums will increase) to meet these requirements.

Homeowners Insurance: Replacement Cost ≠ Market Value

If your home has appreciated significantly, your homeowners insurance might be dangerously inadequate. Many people insure their home for the market value, but that's not what matters.

 

What you need: Replacement cost coverage - the amount it would cost to completely rebuild your home from the ground up.

 

With construction costs rising (labor shortages, material costs, regulatory changes), replacement cost often exceeds what you originally insured for, and sometimes exceeds market value.

The Inflation Guard Illusion

Most policies include an "inflation guard" that automatically increases coverage by 2-4% annually. Sounds good, right? Except construction costs have been rising faster than that in many markets, especially for high-end custom homes.

 

Signs you may want to reconsider your coverage:

  • You've done major renovations not reflected in your coverage
  • Your home is over $2 million - standard policies often have insufficient limits
  • You haven't had an updated replacement cost valuation in 3+ years

Valuable Articles: Those Standard Limits Won't Cut It

Standard homeowner policies have shockingly low limits for specific categories:

  • Jewelry: Often $1,500 total
  • Fine art: Typically $2,500 total
  • Wine collections: Usually $2,500-$5,000
  • Collectibles: Minimal coverage

 

If you own a $15,000 engagement ring, a $40,000 art piece, or a $50,000 wine collection, you need scheduled personal property coverage (also called a valuable articles floater).

 

How it works: You have items professionally appraised, then schedule them individually on your policy. This provides:

  • Coverage for the full appraised value
  • "All-risk" protection (broader than standard policies)
  • No deductible on scheduled items
  • Coverage for mysterious disappearance (not just theft)

 

Cost: Usually 1-2% of the item's value annually. So a $20,000 piece of jewelry might cost $200-$400/year to insure properly.

Cyber Coverage: The New Essential

Here's a coverage gap most families don't even know exists: personal cyber insurance. And in 2025, with AI-powered scams becoming increasingly sophisticated, it's becoming more important.

 

What Cyber Coverage Includes

 

Personal cyber insurance typically covers:

  • Wire fraud: Someone tricks you into wiring money to a fake account
  • Social engineering scams: Elaborate impersonation schemes
  • Identity theft resolution: Credit monitoring, legal fees, lost wages
  • Cyber extortion: Ransomware demands
  • Data breach notification costs: If your personal data is compromised

 

Coverage amounts: $25,000-$100,000 policies are common 

 

Cost: Usually $25-$75 monthly

Employment Practices Liability: If You Have Household Staff

Nanny? House manager? Personal chef? Housekeeper? If you employ household staff, you need Employment Practices Liability Insurance (EPLI).

 

What it covers:

  • Wrongful termination claims
  • Discrimination allegations
  • Sexual harassment claims
  • Wage and hour disputes

 

Why you need it: Domestic employment lawsuits happen more often than you think, and they're expensive even when you win (legal defense alone can cost $50,000-$150,000).

 

Cost: Typically $500-$1,500 annually for $1 million in coverage - which is much less than defending a lawsuit

Auto Insurance: Special Considerations

Agreed Value for Luxury/Collector Vehicles

Standard auto policies pay "actual cash value" which depreciates over time. For luxury vehicles or collectors' cars, consider "agreed value" coverage where you and the insurer agree upfront on the vehicle's value.

Teen Driver Strategy

If you have teenage drivers, your umbrella liability becomes even more important. Teen drivers are involved in accidents at 3-4 times the rate of experienced drivers. Make sure your underlying auto policy limits are robust before that umbrella layer needs to kick in.

Directors & Officers Coverage: Your Board Service

Serving on a nonprofit board? Corporate board? Condo association?

You need Directors & Officers (D&O) insurance. Even nonprofit boards can face lawsuits -and the organization's coverage might not adequately protect individual board members.

 

What to check:

  • Does your nonprofit or condo association carry adequate D&O coverage?
  • Are you named specifically, or just covered as "any board member"?
  • What's the policy limit, and how many board members share it?

 

If the organizational coverage is inadequate, consider purchasing individual D&O coverage (often available as an endorsement to your umbrella policy).

Long-Term Care: To Buy or Self-Insure?

With a $15 million estate exemption, families with $5-10 million+ net worth are increasingly choosing to self-insure for long-term care rather than purchase expensive LTC insurance.

 

The math: Traditional LTC insurance for a couple can cost $6,000-$12,000+ annually. Over 20-30 years, you're paying $120,000-$360,000 in premiums—and you might never use it. If you have substantial liquid assets, self-insuring might make more sense. The key is having enough invested assets that a $300,000-$500,000 long-term care expense won't derail your plan.

 

Still consider LTC insurance if:

  • Your net worth is under $3 million
  • Long-term care costs would significantly impact your spouse's lifestyle
  • You want to preserve inheritance for children

The Annual Review Habit

Insurance shouldn't be a "set it and forget it" part of your financial plan. Aim to review annually or whenever there's a significant life change:

 

Trigger events for review:

  • Home renovation or addition
  • Significant art/jewelry purchase
  • Change in net worth (up or down)
  • New vehicle purchase
  • Starting a business
  • Adding teenage drivers
  • Change in estate exemption rules (like we just saw)

Action Steps

  1. Calculate your current net worth and compare it to your umbrella liability coverage
  2. Get a replacement cost estimate for your home if you haven't in 3+ years
  3. Inventory valuable items and determine what needs to be scheduled
  4. Research cyber coverage options with your current insurer
  5. Review life insurance in light of the new estate exemption
  6. If you employ household staff, verify you have EPLI coverage

 

Insurance planning works best when your financial advisor and insurance professionals work together. We can help coordinate your coverage review and ensure everything aligns with your financial plan. Contact your Entrust Wealth Partners advisor or call us at (860) 838-3730. 

 

 

The information provided is for educational purposes only and should not be considered insurance advice. Please consult with a qualified insurance professional to determine the appropriate coverage for your specific situation.