Sure, You Have Home Insurance. But Do You Have Enough?
How much do you know about homeowners insurance? Do you have the coverage you don’t need—or lack coverage you do?
Even though many luxury homeowners have access to experts—attorneys, financial planners, insurance agents, risk managers—many are actually underinsured. Take flood insurance, for example. A survey released in 2017 by the Insurance Information Institute, an industry trade group, found that nearly half of all American homeowners mistakenly believe that their homeowner insurance policy will cover them against losses due to floods. It doesn’t.
“That’s just one of the myths surrounding insurance that even some of the most sophisticated homeowners hold,” said Loretta Worters, an Institute vice president.
While most standard homeowner policies do cover water damage resulting from burst pipes or an appliance leak, flooding, is defined under the National Flood Insurance Program as excess water on land that is normally dry, affecting two or more acres of land or two or more properties, is covered only by a separate flood insurance policy.
As individuals progress in their careers and build more wealth, an insurance review becomes more important, experts say.
“As their homes, valuable possessions, and personal wealth grow in value, the risk of loss increases,” said Scott Teller, executive vice president, underwriting, for Chubb Personal Risk Services. That is why working with a professional insurance agent is so important—but so is staying in touch with that agent on a regular basis to update him or her on life and other changes that can affect your insurance needs.
Here are five types of insurance coverage you may not realize you need.
Excess flood insurance
Even if you have a standard flood policy, it might not be sufficient to protect you. Policies purchased through the National Flood Insurance Program are capped at $250,000 for your home’s structure and $100,000 for contents. Ms. Worters said that policies with limits of $10 million or more are available through private insurers for those needing more protection. Spencer M. Houldin, president of Ericson Insurance Advisors, recently wrote an excess flood policy for an elevated oceanfront home on Fire Island in New York. The policy provided coverage of $3.3 million on the dwelling and $900,000 for personal property. The cost: $15,267 a year.
Jewelry and collectibles coverage
Whether your valuables consist of jewelry, fine art, or a wine collection, you need “valuable articles coverage” to insure their full value. A standard homeowners insurance policy has limited coverage for these items and, in the case of loss, a deductible would likely apply. The average cost: $10 per $1,000 of coverage for jewelry; $2 per $1,000 of coverage for collectibles or art.
Workers’ compensation insurance covers the medical expenses and lost wages of nannies, housekeepers, and other household employees who are injured or become ill on the job and is required by many states. It also protects you, as the employer, from liability. The average annual cost: is $750 based on a salary of $50,000.
Personal cyber protection may cover your losses arising from identity theft, hacking, cyberstalking, or harassment. “If you accidentally click on a malicious link and your identity is stolen, cyber insurance may be available to replace any money that was stolen and ensure that you have the financial and administrative resources you need to get your life and identity back,” Mr. Teller said. The average annual cost: $250 for $100,000 of protection.
An umbrella policy
High-net-worth individuals are often targets for lawsuits. An umbrella policy provides excess liability coverage to help protect you and your assets when the underlying limits of your home or auto policies aren’t sufficient to cover the cost of a lawsuit or accident. Some policies include defense costs within the maximum covered amount, while private-client insurance policies customized for high-net-worth families typically pay for defense costs over and above the policy limits. The average annual cost: $200 for $1 million in coverage in a household with two cars; $100 for every $1 million after that.
If you’re thinking about adding additional insurance coverage to protect your assets, here are some things to consider.
Coverage varies widely between carriers
According to Kenneth Sidlowski, practice group leader for the Horton Private Client Group in Orland Park, Ill., the policies offered by mainstream insurance companies like Allstate and State Farm are very different from those issued by companies such as Chubb and PURE that cater to high net-worth individuals. Loss of use coverage, for example, which pays your living expenses if you can’t stay in your home due to a fire or other casualty, is capped in mainstream policies, but Mr. Sidlowski said that high-net-worth carriers don’t set a limit on the loss of use in most states. Instead, they pay for living costs as long as it takes to rebuild your home.
Many high-net-worth individuals use trusts or limited liability companies to hold title to their homes. Mr. Houldin said that homeowners often forget to add that entity as an additional insured on a homeowners policy. That could mean that if there is a lawsuit against the owner of the property for any reason, the entity and you, as the beneficial owner, might not be protected. “There are numerous examples of suits being brought against trusts or LLCs as the owner of the property for incidents such as slip and falls and the claim not being covered,” Mr. Houldin said. “Adding the entity does not increase the premium, but it does require insurance-company approval.”
Know your home’s replacement cost
The cost of construction materials and labor has skyrocketed because of supply-chain disruptions caused by the pandemic, so that means that the costs to rebuild your home may now exceed your policy limits. Many homeowners may be underinsured as a result. Those with policies intended for high-net-worth individuals are likely to be covered in most states for “guaranteed replacement cost,” no matter how much it costs to rebuild, but policies from mainstream companies may leave you hanging. “They might give you the dwelling amount plus an additional 20% to 25% and then their responsibility ends,” Mr. Sidlowski said. Read your policy to determine current limits, and, if necessary, increase them to cover the full replacement cost of your home.