Luxury Home Insurance Coverage - How it Works

Luxury home insurance is an essential product for your high-net-worth clients. As an insurance agent, understanding the following luxury home coverage options, limits, and unique considerations can elevate your home insurance policy offering.

What is Luxury Home Insurance?

Luxury home insurance applies to high-value homes, typically worth $1 million and up. Standard market insurance companies are typically not suitable to cover these homes, as these unique risks require bespoke coverage offerings that standard carriers do not offer. High-end finishes require increased replacement cost coverage as well as extensive offerings for enhanced contents, other structures and loss of use coverages.

Luxury home insurance goes beyond what is available through endorsements designed to fill coverage gaps, ensuring your high-net-worth clients don’t find themselves underinsured.

What Does High-Value Home Insurance Cover?

Luxury home insurance policies offer a broader range of coverage than standard policies, including:

Appropriate Dwelling Coverage

Luxury home insurance policies offer extended and/or guaranteed replacement cost coverage for the dwelling and other property structures, ensuring your clients are reimbursed for specific repairs, materials, and building costs related to high-value homes.

Your clients also have the option to take a cash setlement if the home is destroyed, allowing them to choose to build their home in a different location. This might occur if the property experienced severe damage due to flooding, tornadoes, fire, etc., making it less desirable, or unsafe.

Increased Contents Coverage

More valuable possessions require all-risk coverage with increased limits that are higher than the default offering given in the standard market. Built-in sublimits for exposures such as jewelry are often increased within the luxury home market. Often, affluent individuals require a separate collection policy to appropriately cover their jewelry, antiques, wine and fine art.

Replacement Cost

Standard home insurance policies often offer actual cash value based on the depreciation of items. Luxury home policies automatically include replacement cost options that ensure your clients are covered for not only their higher value items but also that they are reimbursed based on the current value of new items.

Increased Liability Coverage

High-net-worth clients have more to lose in a lawsuit and are often targets of lawsuits. As a result, your clients require increased coverage to go towards higher settlements and legal judgments. Another consideration is coverage for cases where accidents result in libel, slander, and defamation. In this case you might recommend an umbrella insurance policy.

You can ensure your clients have sufficient coverage by offering an umbrella insurance policy that matches their net worth. This will ensure they have enough coverage for all liabilities related to lawsuits as well as high-value insurance claims.

Additional Automatic Coverage

Typical examples of automatic coverage available through luxury home insurance not available in standard policies might include:

• Sewer backup
• Tree and shrub replacement
• Fallen tree removal
• Higher medical payment limits for personal injuries
• Credit card, forgery, and counterfeit money coverage
• Vacation and second homes
• Kidnap ransom and extortion
• Deductible waivers for larger claims

Other perks might include complimentary home appraisals for more accurate luxury home insurance coverage or free risk management services to help clients reduce losses. This might include a wildfire defense service that takes preventative action when there’s a wildfire in the area, recommending property upgrades that will help avoid damage from floods, or services such as security system assessments and installation.

Additional Coverage Offered by Luxury Home Insurance

Your clients require higher coverage limits for luxury homes to avoid significant coverage deficits that negatively impact their wealth. Coverage limits are determined based on several factors, including:

• Specialty insurance coverage for items such as a fully stocked wine cellar, art and art collections, jewelry, home theaters, pools, guest houses, tennis courts, etc.
• Protection against natural disasters such as earthquakes, floods, etc.
• Schedule personal property to cover valuable items
• Extended replacement cost coverage to account for rebuilding cost increases
• Guaranteed replacement cost to cover the full cost of rebuilding the home, regardless of the current construction costs
  
  

How Much Luxury Home Insurance Should You Offer to Clients?

You can determine how much luxury home insurance you should offer your clients based on the following:

• The insurance-to-value (ITV) details discovered at a home inspection to determine the actual cost to replace the home
• Home inspection results that determine the condition of the home are used to assess risks for claims
• The location of the home to assess the risk for fires, break-ins, weather events, floods, etc.
• Whether the home was designed by an architect with multiple bespoke design elements
• Whether the home is on a historic registry
• Proximity to fire stations
• The contents of the home determine the need for scheduled personal property for unique, valuable items

Another major consideration is sufficient coverage to provide suitable temporary housing if the home is uninhabitable. Keeping in mind that these clients will expect to live in a home that meets their higher standards of living, they’ll have much higher living expenses than the average home insurance client.

You also have to consider the unique design elements of the luxury home and the requirements to find architects and professionals with experience in building luxury or historic homes. This can prolong the building process and increase the costs of temporary living for your clients.

High-net-worth clients face unique challenges when finding enough coverage for their homes. With more bespoke features, larger homes, and higher value assets and belongings in the home, luxury home insurance is the best option to offer complete peace of mind. Your job is to  thoroughly assess their property, structures, and wealth to ensure you offer tailored coverage that will make your insured whole in the event of a loss.

When your high-net-worth clients require specialty insurance policies for their high-value homes, Novatae has the experience to provide customized solutions suited to their needs. Contact Novatae for more information.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.