By Greenpoint Insurance Advisors
Serving as a trustee is a significant responsibility that exposes individuals to personal financial risk. Whether you are a professional fiduciary or a family member named in a loved one’s estate plan, understanding trustee liability insurance is essential to protecting yourself while fulfilling your duties. Before you buy trustee insurance, here are the ten questions you should ask to make an informed decision.
1. What does trustee liability insurance actually cover?
Trustee liability insurance protects you from claims alleging breach of fiduciary duty, mismanagement of trust assets, errors in judgment, and failure to properly administer the trust. Coverage typically includes defense costs, settlements, and judgments arising from your actions or omissions as a trustee.
2. Does this insurance protect my personal assets?
Yes. One of the primary benefits of trustee liability insurance is personal asset protection. Without coverage, a successful claim against you could result in judgments paid from your own savings, retirement accounts, or other personal property. The policy creates a financial buffer between your personal wealth and trust-related claims.
3. Are legal defense costs covered even if the claim is baseless?
Most policies cover defense costs from the moment a claim is made, regardless of merit. Frivolous lawsuits filed by disgruntled beneficiaries can still cost tens of thousands of dollars to defend. Having insurance means you are not paying out of pocket to prove your innocence.
4. What is the difference between claims-made and occurrence policies?
Claims-made policies cover claims filed during the policy period, while occurrence policies cover incidents that happen during the policy period regardless of when the claim is filed. Most trustee liability policies are claims-made, which means maintaining continuous coverage is important for ongoing protection. Understanding this distinction is critical when you buy trustee insurance.
5. What exclusions should I watch for?
Common exclusions include intentional wrongdoing, criminal acts, self-dealing transactions, and claims arising from actions taken before the policy inception date. Some policies also exclude investment losses unless negligence is proven. Review exclusions carefully with your insurance advisor before finalizing your purchase.
6. How much coverage do I need?
Coverage limits should reflect the size and complexity of the trust you administer. A general guideline is to carry coverage equal to at least the value of trust assets, though smaller trusts may require lower limits. Consider potential legal fees, which can accumulate quickly in contentious disputes.
7. Can the trust pay for my insurance premium?
In many cases, yes. Trust documents often authorize payment of reasonable trustee expenses, including insurance premiums. If the document is silent on this matter, consult with the trust attorney to determine whether such payment is appropriate under applicable state law.
8. Does my policy cover mistakes made by professionals I hire?
Trustees often delegate tasks to attorneys, accountants, and investment advisors. While those professionals should carry their own insurance, your policy may still respond if a beneficiary sues you for negligently selecting or supervising them. Understanding this coverage gap is crucial when you buy trustee insurance.
9. What triggers a claim under my policy?
A claim is typically triggered by a written demand for money or services, a formal lawsuit, or notification of intent to sue. Many policies also require you to report circumstances that could reasonably lead to a claim. Early reporting often results in better outcomes.
10. How long does coverage last after I resign as trustee?
Claims can arise years after your service ends. Most policies offer an extended reporting period, sometimes called tail coverage, that allows you to report claims after the policy expires. Understanding the length and cost of this extension is important when transitioning out of your trustee role.
Ready to Buy Trustee Insurance?
Trustee liability insurance is not merely an optional expense but a prudent investment in your financial security. By asking these ten questions before you buy trustee insurance, you position yourself to make informed decisions and serve with confidence. Working with an insurance professional who specializes in fiduciary liability ensures you find the policy that best fits your needs and provides the protection you deserve.
About Greenpoint Insurance Advisors
Greenpoint Insurance Advisors specializes in trustee and fiduciary liability insurance for individuals and professionals who administer living trusts. Contact us today to learn more about your coverage options.