Understanding Luxury Home Insurance

We were doing some internal research recently to see what people knew about Luxury Home Insurance in Atlanta and North Georgia and what we found was quite eye-opening.  After reading through a few Reddit chains and seeing some of the advertised insurance companies, it was clear that people with luxury homes need a better source of education on how to protect one of their largest assets.

From an insurance perspective, luxury homes have typically been defined as any home that has a rebuilding cost of over $1,000,000.  However, in recent years, with the pressures of inflation, some of the insurance companies in that space have moved to only insuring homes over $1,500,000 or $2,000,000.  It is important to understand that there are only a handful of home insurance companies out there that are equipped to handle coverage on homes of this value.  Why does this matter?  Let us give some examples so you avoid falling victim to the coverage pitfalls of having standard insurance on your luxury home.

Contractual “Gotchas” with Standard Insurance

With insurance, the contract is always king.  Let us be clear, not all insurance is created equal, and the contract varies dramatically from insurance company to insurance company.  Many of the insurance companies that you hear advertised every day on television are built to insure “standard” homes and have an extremely limited contract.  This limited contract is an issue for someone in a home under $1,000,000 as there are plenty of limitations and exclusions that apply which lead to payouts that are much less than anticipated.  However, that same contract is a significant issue for someone in a high value home.  A few examples:

No Guaranteed Replacement Cost: Most homeowners do not understand that 90% of insurance companies will NOT pay whatever it takes to rebuild their home.  We have seen this become a large issue in places such as California where the cost to rebuild after a fire was significantly more than the policy limits.  In these cases, the homeowner is forced to sell their property as the insurance will not pay to rebuild a house similar to the one they just lost.  This is a significant issue given that 80% of homes are underinsured, and 60% of those by more than 20%.  Only companies focusing on the high value home insurance market have contracts that will pay the full amount to rebuild your home, no matter what that cost ends up being.

Internal Coverage Limitations: Although losing your home to a fire, hurricane or tornado can happen, almost a quarter of the home insurance claims that occur are due to internal water damage.  This is another area where homeowners could be in for a rude awakening once they find out about internal limitations on their policy.  The second “gotcha” area is the limitation of either no coverage or minimal coverage, for losses stemming from a backup of sewer and drains.  This is a particular issue for those luxury homeowners that have a finished basement.  It is not uncommon for a claim of this nature to easily exceed $100,000, an amount that would leave homeowners on a standard insurance contract short either $95,000 or the entire $100,000!

Additional Living Expenses:  Unfortunately, we have seen firsthand several total home losses in our office over the past few years and we can attest that rebuilding a home can be a long project.  From demolition, to design, to coordinating with the contractor on a rebuild, the amount of time it takes to complete the project can easily exceed a full year, especially when rebuilding a luxury home.  A third “Gotcha” hidden in standard home contracts is a limitation to only pay for your additional living expenses for up to 12 months.  If you are renting a home for $5,000, and it takes two years to rebuild your old home, that is $60,000 in expenses that your standard home policy will not cover.  Once again, only insurance companies focusing on the luxury home insurance market will be able to take care of you for the entirety of your rebuild, without the stress of additional living expenses running out.

Claim Philosophy and Agency Advocacy

If you are lucky enough to escape unscathed from the contractual limitations of a standard home insurance contract, then you will be battling both the company claim philosophy and lack of an advocate on your side of the fence.

What do we mean by claim philosophy?

Imagine your luxury home in North Atlanta suffers a significant water loss that will require extensive renovations in the coming months.  Essentially, you are now partnering with your insurance company who controls the budget, the timeline, and contractors.  Insurance adjusters at standard insurance companies have large caseloads and are used to combatting massive fraud when dealing with home claims.  Think about it, is the same adjuster handling a loss at a $250,000 home equipped to know the nuances of adjusting the loss of your $2,500,000 home?!  The answer is no, they are not.  High value home insurance company adjusters have smaller caseloads and are specifically trained to take care of the unique needs of high-end homes.

Why does agency advocacy matter?

Many of the standard insurance companies available are either “captive insurance companies” or “direct insurance companies”.  This means they either have an agent that is employed by the insurance company, or they have no agent at all!  The insurance companies that focus on the luxury home market typically use independent insurance agents to represent them.  An independent insurance agent acts as YOUR advocate and has the knowledge to guide you not only when figuring out which program best suits your needs, but also at the time of loss so you don’t have to blindly deal with the insurance company.  What is this worth to you?  We have had situations where agency advocacy has improved outcomes from the tens of thousands, to hundreds of thousands of dollars!  Not to mention the time saved helping you navigate the complexities that sometimes accompany a large home insurance claim.

How will you protect one of your largest Assets?

Now that you have an education on the differences between “standard” and “luxury” home insurance companies, we trust you will be able to make an informed decision when choosing who to partner with for the protection of your luxury home.  Our Private Client Team is constantly keeping up with market trends, from cyber to private flood, to keep our clients with luxury homes protected against all the unique risks they face.