For high-net-worth individuals, I generally think about insurance as a tool for protecting against catastrophic losses, not every possible loss. The goal is to retain risks you can comfortably absorb and transfer risks that could permanently impair your wealth or future earning power.
Here's how I'd think about each category.
Life insurance
Whether you need life insurance depends less on your net worth and more on who depends on your income.
If you're still building wealth and have a spouse, children, or business partners, life insurance can replace income, fund estate liquidity, or buy out a business interest.
If you've reached financial independence and your estate can comfortably support your heirs, you may need much less—or none at all—unless it's being used for a specific estate planning or tax strategy.
Good reasons to keep life insurance:
- Young family relying on your earnings
- Estate liquidity
- Funding trusts
- Business succession
- Charitable planning
Less compelling reasons:
- "Investment" pitches with high commissions
- Buying far more coverage than needed
Disability insurance
This is often the most underappreciated insurance.
For someone earning $300k–$2M annually, the present value of future earnings is often many millions of dollars.
Example:
- $500k/year income
- 20 working years remaining
That's roughly a $10M+ asset you're protecting.
If your wealth isn't already large enough that you could stop working tomorrow, disability insurance often provides more value than life insurance.
Once your portfolio is large enough to fully replace your income indefinitely, disability becomes much less necessary.
Umbrella insurance
This is one of the highest-value insurance products available.
Premiums are usually modest relative to the protection.
For high-net-worth households, I'd often consider:
- $2M–10M umbrella
- sometimes higher if assets or public visibility justify it
It protects against lawsuits that exceed auto or homeowners limits.
Self-insuring
As wealth grows, increasing deductibles and self-insuring smaller losses often makes sense.
Examples:
- Higher auto deductibles
- Higher homeowners deductibles
- Skipping extended warranties
- Paying for minor repairs yourself
If a $5,000 or $10,000 loss won't materially affect your finances, paying higher premiums to avoid that risk may not be worthwhile.
Homeowners insurance
This is where costs have risen dramatically, especially in areas prone to hurricanes, wildfires, hail, or flooding.
Strategies include:
- Increase deductibles substantially.
- Insure replacement cost rather than market value where appropriate.
- Remove unnecessary endorsements.
- Improve the home's resilience (roof, shutters, fire-resistant materials, monitored security systems).
- Shop carriers regularly through an independent broker.
Auto insurance
Premium reductions often come from:
- Higher deductibles
- Bundling policies
- Telematics programs (if you're comfortable with them)
- Removing collision coverage on low-value vehicles
- Reviewing annual mileage estimates
Creative but legitimate ways to reduce premiums
Some approaches that can meaningfully lower costs include:
- Consolidating all personal insurance with one carrier to qualify for multi-policy discounts.
- Working with an independent insurance broker who can access specialty insurers for affluent households.
- Paying premiums annually instead of monthly if a discount is offered.
- Maintaining excellent credit where insurers are allowed to use insurance scores.
- Using higher deductibles and keeping a dedicated "insurance reserve" invested to cover them.
- Placing recreational vehicles or collectibles with specialty insurers rather than standard carriers.
- Periodically reviewing coverage to remove outdated riders or insure only items that still justify separate coverage.
When self-insurance makes sense
A useful rule of thumb is:
Insure against losses that would significantly change your financial future; self-insure losses that are merely inconvenient.
Someone with a $20 million portfolio probably doesn't need to insure every $2,500 risk.
Someone with a $500,000 portfolio probably shouldn't self-insure a $500,000 liability.
One caution
Trying to save money by reducing liability coverage can be a false economy. For high-net-worth individuals, liability exposure often matters far more than replacing physical property. It's generally more sensible to carry strong liability limits (including an umbrella policy) while accepting higher deductibles on property losses.
Overall, if I were prioritizing insurance for someone with substantial assets, I'd typically rank it this way:
- Adequate liability coverage (including an umbrella policy)
- Disability insurance (if still dependent on earned income)
- Homeowners and auto insurance with deductibles sized to your ability to absorb losses
- Life insurance only to cover a clear financial need (dependents, estate planning, or business obligations)
This framework aims to maximize protection against financially devastating events while avoiding paying premiums for risks that can reasonably be absorbed from personal wealth.
