High Net Worth Individuals Often Face Complicated Homeowners Insurance

Homeowners insurance is fundamentally the same whether it covers a $100,000 home or a $10 million home, but high net worth individuals often face more complicated insurance risks.

Many wealthy individuals have valuable personal property, a vacation home or household staff and those things are not favorable in the eyes of underwriters. The fine print of a typical homeowners insurance policy – which covers personal property, offers liability protection and provides additional living expenses – often excludes or limits coverage of those amenities.

That’s not to say high net worth individuals can’t adequately insure their homes. Insurance companies will cover them, for increased premiums, and most homeowners insurance companies offer a long list of endorsements and floaters to bolster coverage where needed.

Personal Property

Homeowners insurance typically covers the value of the policyholder’s personal property up to a percentage of the value of the home covered. For example, a policy that covers a home valued at $100,000 might include up to $70,000 of personal property coverage. The same is true for more expensive homes except the amount a policyholder can claim for certain categories is limited. That is where wealthy individuals can find themselves underinsured.

One category with a claim limit is jewelry, which policies usually only cover up to $2,000 per claim. Some high net worth individuals might have a single earring worth more than that limit and need to purchase an endorsement to expand coverage of that category. The same situation can occur for other categories such as sporting equipment and musical instruments, or landscaping.

Vacation Homes

Some high net worth individuals own their own vacation retreat and insuring those properties is more complicated than a home base. Tiny bungalows, condos and mansions are all considered to be at a higher risk if they are not a primary residence and, consequently, cost more to insure. Insurers charge more because residents mitigate damages that might occur and the more often a home is inhabited, the better.

AIG, for example, applies a surcharge to seasonal and secondary homes but waves the charge if a full-time caretaker lives in the home during the owner’s absence. The company also discounts policies covering an estate where a full-time caretaker lives on the grounds. Even if a caretaker only checks on a secondary property once per week, AIG discounts the surcharge.

Other homeowners insurance carriers price secondary home policies similarly.

It’s Not All Bad

Part of the cost of owning multiple homes is the expense to insure them and that expense can be high. The goods news is insurance companies have a long list of discounts on policies that might apply to wealthy homeowners because of the nature of their properties.

Most insurance companies offer a discount when someone purchases more than one policy or “bundles” them together. This is one way individuals with high premiums can save but there are factors other that might not seem as obvious.

Since many secondary homes are uninhabited for some or most of the year, homeowners often choose to install security and internal sprinkler systems. The systems might reduce the number or severity of claims and result in a homeowners insurance discount.

Other discounts also apply, including those for fire alarms, which almost every home has.

Another way to cut costs on homeowners insurance is for policyholders to take advantage of opportunities to exclude certain coverage from their policy. For example, AIG allows policyholders to drop the personal property protection from policies for secondary homes. Dropping what the company calls “content coverage” from the policy reduces the cost of premiums by 30%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.