A family that has accumulated substantial assets knows that it needs insurance protection. However, they may not be aware of how their risk of loss has changed over the last few years. Their home and assets have all become more expensive to replace, and they are facing growing threats of loss from natural catastrophes.
Homes in coastal areas, particularly remote locations - on mountainsides, near forests or overlooking the ocean - may have inflated construction costs due to the expense of rebuilding in those spots. In some states, the cost of rebuilding a home is increasing at a 6 to 7% annual rate, more than triple the consumer inflation rate. High-end homes also often have unique features that may be expensive to recreate.
In addition, those remote locations are facing increasing threats of natural catastrophes. The western and mountain states have experienced multiple major wildfires in recent years. Hurricanes have grown in frequency and intensity, with four major storms hitting the U.S. in 2017. A 2017 storm in Denver, Colorado, included hail and tornadoes and caused $2.5 billion in damage.
And, one insurer has reported that water-related losses almost doubled over a five-year period.
With these realities in mind, high-net-worth individuals need to make sure they are properly insured.
Underinsurance on the home also has ripple effects. Other insurance limits on the policy are based on the amount covering the home. For example, the amount of insurance covering other structures on the grounds is commonly 10% of the amount on the home. Underinsurance on the home may lead to underinsurance on structures such as a gazebo, guest house, servants' quarters or stables.
In addition, coverage for your personal property may also be inadequate. The value of furniture, electronics, computer equipment and other types of property has risen sharply and high-net-worth individuals will typically have furnishings and belongings that are more expensive and rare. For example, the prices of certain high-end refrigerators and dishwashers rose between 93% and 130% from 2000 to 2018.
Affluent households also often have valuables such as art work, jewelry, collectibles or musical instruments. These types of items require special coverage.
Some people collect classic cars. Appraisals and special coverage are necessary for these, as well. Insurers ordinarily reduce the settlement for a 10-year-old car to account for depreciation.
That may be suitable for many types of vehicles, but it is not for a vintage Corvette or a Ferrari. Owners of these vehicles should seek coverage that will recognize their market value.
What you can do
So, the question is, if you are a high-net-worth individual, would your current homeowner's insurance cover your home if it were a total loss? In light of the increasing risks highlighted above, as well as higher rebuilding costs, we recommend that you meet with us to evaluate your coverage.
High-net-worth homeowner's insurance contains all the coverage provided under a traditional homeowner's policy. The difference is within the additional security offered. If a large portion of your home is damaged, a high-value homeowner's policy will allow it to be rebuilt to its previous state or value.
The amount of insurance on a home should be large enough to pay for rebuilding should it be demolished by a fire or some other event. It should also cover all of the features and property you have in the home. This is known as replacement cost coverage.
An alternative - actual cash value coverage - allows the insurer to reduce the loss settlement to reflect the home's depreciation. That would leave the homeowners with less than they need to return to their prior lifestyle.
As for your personal belongings, a typical homeowner's policy will cap content coverage for various categories of items, such as jewelry. This will not be sufficient if the value of your belongings exceeds the coverage of the policy.
While some recommend purchasing separate endorsements for these high-value items, we recommend high-net-worth homeowner's insurance that can adequately secure all your goods without the need of endorsements.
Give us a call if you would like to discuss your coverage's/options.