"Working with a woman today who suffered a major fire loss with a mass-market carrier. Her home was insured for just over $1 million when it should have been nearly $3 million. The six figure amount she has been paid was just for replacing the basement, renovating some of the interior, and the damaged furniture."
– Denise Koslowsky, Principal, Advocate Brokerage Corp.
"A client had a massmarket carrier. I moved him to a HNW-market carrier. Soon thereafter, a windstorm pushed a tree through his home. The HNW carrier paid for the windows to be hand blown to match the original windows, while the neighbor had to accept stock windows that did not match the rest of the home."
– Chris Chatfield, Director, Private Client Group, Kemmons Wilson Insurance Agency
Also, standard policies will often not pay for losses due to breaks or fractures of fragile items if, for instance, a precious statue or vase is accidentally knocked over. Such losses are typically covered by policies from HNW-market carriers.
These carriers also provide the ability to cover groups of items, such as a wine or art collection, on a blanket basis in which an overall coverage amount is set for the group. This approach eliminates the tedium of trying to estimate the value of each individual item, and makes the overall policy easier to manage.
Differences exist beyond coverage. HNW-market carriers will often bring in experts to suggest safety measures, such as a backup generator to keep a temperature-controlled wine cellar operating during a sustained power outage. They may also be able to assist in the evacuation of precious items from homes caught in the path of a hurricane.
The main home and any vacation homes often represent a significant, if not the largest, component of a family's net worth. Therefore, having the proper coverage in the homeowners policy is critical to a wealth protection plan.
Nevertheless, after almost every natural disaster, news stories describe families who have discovered they lack sufficient insurance to rebuild their home. According to a study conducted by United Policyholders one year after the 2010 Fourmile Canyon Wildfire in Colorado, 64 percent of respondents who lost their homes reported being underinsured by an average of $200,000. In a similar study by the organization two years after a series of 2007 California wildfires, 66 percent reported being underinsured by an average of more than $319,000.7
These disturbing numbers parallel the findings of MSB, a leading worldwide provider of building cost data and estimating technology for the property insurance industry. Its 2012 study estimated that 61 percent of American homes are undervalued for the purpose of insurance.8
For owners of custom-built or historic homes, the problem may be worse, especially if they insure their home with a mass-market policy. Standard industry tools that estimate the cost of rebuilding a home can undervalue the higher quality materials, superior craftsmanship, and unique architectural features in these types of homes. Furthermore, the owners may have expanded the size of the home or built a lavish entertainment center in the basement. Like most people, they forget to tell their insurance agent.
These homeowners should secure full replacement cost coverage (also called guaranteed replacement cost coverage) for the home structure. Available in all but a few states, this coverage will usually pay to rebuild the home with similar quality materials and craftsmanship, even if the cost exceeds the coverage limit in the insurance policy. In effect, this coverage shifts the responsibility for properly estimating the cost of replacing the home from the family and insurance agent to the insurance company. Therefore, the carriers will often send an expert to the home to document its features and estimate the replacement cost. The visit also gives the expert a chance to suggest ideas for better protecting the family and the home.
By contrast, mass-market policies typically offer basic replacement cost or extended replacement cost coverage. The former will pay to rebuild a damaged home up to the coverage limit in the policy. The latter will usually extend the amount it will pay up to 20- 25 percent above the coverage. As the real-life disaster stories illustrate, even the extended replacement cost coverage might not make up for the shortfall.
