shutterstock_93938959

I know how hard you have worked to acquire the home of your dreams. That’s why I’d hate to see so many years of effort, labor and risk literally go up in smoke or underwater because there was a gap in your risk management plan. Common mistakes lead to leaving gaps in an insurance plan, under-insuring the home or under-insuring contents, leading to disappointment and loss, in the unfortunate event a disaster befalls your home that should have been covered against.

It’s especially vital to take extra steps to protect luxury homes and properties worth $500,000, or even $1 million and up. Many insurance agents do not fully understand homes in this category. They are used to working with people with much smaller homes and contents that are easier to replace, or lack the unique construction attributes and contents experience, and despite the best of intentions leave may leave wealthier clients uninsured.

Here’s what happens: For a lot of insurance carriers, when they break in a new agent, they’ll teach the agent how to work a specialized software program. The software program takes an average house, with average square footage and makes reasonable assumptions about the value of a typical middle class home’s contents and furnishings, and spits out a ballpark premium. The homeowners may add some contents coverage for specific items, such as a gee-whiz home theater system or some family heirloom jewelry or a gun collection, or a lot of tools of a trade in the garage or storage shed. But for the most part, the average homeowner’s insurance needs fall in the fat part of the bell curve, by definition.

If you own a home approaching the million dollar category and up, and you furnish it, chances are good the assumptions those run-of-the-mill insurance agents are making about your home don’t apply to you.

Here’s why:

  • If you are prominent in the community, you may be a target at elevated risk of lawsuits from trial lawyers. You may need extra liability insurance. You certainly have more house to protect, and probably have more contents to protect against the claims of creditors waiving a judgment. Fortunately, it’s relatively easy to purchase extra liability and umbrella insurance. But don’t be content with the recommended default amount of coverage an insurance agents’ computer spits out at you. Make sure some real thought has gone into that number. Between your homeowner’s insurance policy and umbrella liability coverage, which is very inexpensive, I recommend getting as much coverage as you can easily afford.
  • Your home likely has some quality materials and craftsmanship in the construction of it. For example, your home may have a custom-carved mahogany stair balustrade or solid wood doors, trim, beautiful hardwood flooring and other features that lower-end homes don’t have. You may have a lot of artisanal craftsman touches throughout the home. That’s going to make the cost of actually replacing your home much greater than a computer-generated square footage estimator would suggest. This is also true of valuable older homes and historic buildings. You want to be dealing with an agent that understands the true value of your home, including what it takes to replace it. You will want that noted in your policy documents, and in the event you have a claim, you’ll want an insurance adjustor who understands how to value these things, as well.
  • You may well need substantial extra contents coverage. Yes, many people are well-served by a simple and stock recommendation based on reasonable assumptions about the value of a typical set of home furnishings that everyone understands and can get claims paid quickly.

Your case may well be different. In the luxury home insurance market, many customers have valuable art collections, musical instruments (a good Steinway piano can be worth six figures right off the bat), luxury or collector cars in the garage, hand-made, bespoke suits and other clothing, antique furnishings and jewelry and other collectibles that just aren’t accounted for in standard insurance industry assumptions.

For higher-end homeowners, including many of my own clients, it’s extra important to have a proper contents inventory done, over and above the valuation you place on the home itself. Further, it’s a good idea to have an appraisal done now and again on items you believe have appreciated in value, so that you can justify and purchase an amount of insurance coverage that truly protects you.

  • Don’t forget to account for this on your flood insurance policy, as well!
  • Don’t store very valuable items in the basement or below ground level. Flood insurance coverage for basements and below-ground items is limited.
  • Be selective with insurers. Among national insurers, the Chubb Group seems to have taken the most interest in this market. They have a couple of hundred specially trained appraisers and adjusters that are familiar with the unique concerns of high-end and luxury homes with truly unique and difficult to replace contents. If there’s ever a problem, it will be much easier to get a claim paid from a company that had its own appraiser in your house looking at the items than it would from a garden-variety insurance agent writing a plain vanilla policy.

There are also insurance brokers that specialize more in luxury or historical buildings who have relationships with many different carriers and can shop your policy around for the best deal and best coverage.