When it comes to high net worth clients, things can get complicated. But properly insuring their homes doesn’t have to be… It is our responsibility as insurance agents and brokers to educate the homeowner on ways to protect their largest asset. Homes that have a Replacement Cost over $1,000,000 are considered “High Valued”. However, Replacement Cost should not be confused with Market Value. It is common for an insurance company’s appraisal to be greater than the purchase price/ market value. Replacement Cost refers to the cost of rebuilding a new home or repairing an existing home to its pre-loss condition. Estimating the cost to rebuild a high-valued home is not an exact science. High Valued homes are not just large in terms of area. Many factors contribute to an increased cost per square foot, such as year of construction, geographical location, high-end upgrades, custom materials, and unique characteristics specific to that individual home. For more details regarding Reconstruction Costs, please refer to Quaker’s April 2017 blog post.
An insurance company who specializes in custom built homes has distinct coverages available to address those qualities. One such coverage is Guaranteed Replacement Cost, which pays whatever it costs to rebuild a home in like kind and quality as it was before the loss – even if those costs exceed the policy limit. This gives protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster. Most middle markets offer Extended Replacement Cost, which pays a certain percentage (generally 25% or 50%) over the limit of the policy to rebuild the home. High net worth carriers contract with experienced appraisers, who are skilled at valuing high-end homes.
Carriers that specialize in High Valued homes understand that coverage needs extend beyond the traditional Homeowner policy. These markets can offer additional coverage, tailored to meet the needs of the insured. High net worth insureds have wealth invested in their home, such as expensive furnishings and valuables. Standard Homeowner policies typically limit the contents coverage at 50% or 70% of a home’s value. They might also limit coverage for fine arts, collectibles, antiques, furs, silver, and jewelry to $1,000 or $2,000. If you feel that your client’s home and its contents exceed the typical caps provided by middle market insurance carriers, you may want to highlight the additional capabilities of a high valued homeowner insurance company.
High Valued insurance policies are designed to help minimize threats to the personal wealth and safety of high net worth clients and their families. Financially successful individuals can be lucrative targets for lawsuits and criminal activity. Therefore, they tend to have additional insurance needs, such as Directors & Officers coverage if they serve on a Board, Employment Related Practices coverage for domestic or non-resident staff (cleaners, landscapers, personal assistants, nannies, etc.), coverage for multiple homes worldwide, special landscaping coverage, and kidnap/ ransom/ fraud protection. While some of these coverages might seem out of reach for your particular clients, high valued carriers can offer increased limits on commonly requested coverages too, like Water Back-up of sewer and drains. (Many standard insurance companies can only offer $5,000 limit for this). High net worth insureds might require additional coverages for Flood, Earthquake, Yachts, high valued Autos, and higher Personal Umbrella limits as well.
Typically, high net worth clients tend to focus on severe loss scenarios that might impact their financial condition & lifestyle, not the smaller scale claims. They may be open to take on higher deductibles for overall policy premium savings. High valued carriers have skilled claims professionals, with reputations for quick payments. With these markets, damaged personal property can be repaired or replaced with new items, without deductions for depreciation. When insuring high-valued properties, it is wise to consider the outcome of a total loss. In addition to rebuilding to match a home’s exceptional building quality, these insurance companies can also offer cash settlement options, without any obligation to replace lost items or repair damaged property.
As you can see, not all insurance companies or insurance products are created equal. This is good news because our insureds are just as unique as the policies that we craft for them! With more insurance carriers entering the high net worth insurance space, comparing their forms and rates can be challenging. But, this competition creates many advantages for high net worth individuals to shop their existing policies. If insurance agents and brokers really listen to the needs of these clients, we can design customized insurance solutions specifically for them. And, let’s face it – giving comprehensive service like that just feels good!
~ Mary Roy is the Director of Personal Lines, specializing in High-Valued Homeowners insurance placements for high-net-worth clients. Mary has been with Quaker Special Risk since November of 2003, after graduating from Worcester State University with a Bachelor’s of Science degree in Communication Disorders. During her years at Quaker, Mary has gained extensive knowledge of the Commercial and Personal E&S Market, handling both binding authority and brokerage new business and renewal accounts. Her main focus caters to celebrity and publicly-recognized figures, with a concentration on coastal and high-limit property insurance placements. She continues to uphold strong relationships with agents and companies at all levels. Mary is an avid Pilates enthusiast, and in her spare time, also enjoys entertaining friends in the White Mountains of NH and visiting family on the beaches of Nahant, MA. Mary also serves on the Board of Directors for YOU Inc., a private, non-profit child welfare and behavioral health organization, serving at-risk children, adolescents, and families in her backyard of Worcester County. She and her husband, Rick welcomed their first child, Abigail Lillian, in 2012 and their second daughter, Charlotte Rose Marie, in 2014.