Securing the right homeowners insurance isnâ€™t typically seen as the most exciting or sentimental part of the house buying experience. But especially for luxury homebuyers with so much at stake, itâ€™s not only important that you do it â€“ but important that you do it right.
Here are the top things luxury homebuyers need to consider when making their purchase:
1) Donâ€™t forget to insure the house!
Crazy as it may seem, itâ€™s a semi-common occurrence for wealthy individuals to forget all about homeownerâ€™s insurance, which is obviously not required if the client is paying cash for the property. But needless to say, youâ€™ll want it.
2) Be aware when buying a luxury property in volatile areas.
This is especially true when buying a house located in a coastal area or any place prone to hurricanes, floods, wildfires, mudslides or earthquakes â€“ make sure to do your due diligence. Check that your home is built to acceptable codes and that youâ€™re able to obtain insurance. And itâ€™s not always obvious: a home located in an extremely remote area, for instance, can make it difficult to obtain insurance if thereâ€™s no fire department or water source within a reasonable distance.
A few basic considerations: distance to water, presence of impact glass or hurricane shutters, is the home retrofitted or engineered to withstand earthquakes, was the home built prior to the most current codes? I had one experience in Florida where a client fell in love with an older home and purchased it – only to then find out that it would be very costly and complicated to retrofit to meet code.
3) Remember that Homeowners Insurance is all about Replacement Cost.
It is not uncommon in many areas of the US to have homes whose market values are significantly different from its replacement costs.
I recently insured a home in Philadelphia that was very large and historically significant. The client paid $2,000,000 for the property, which was then appraised by the insurance company as having a replacement cost of over $15 million. As you can imagine, the cost of insurance for this house became dramatically higher.
Replacement cost insurance promises to rebuild your home with â€œlike kind and qualityâ€ features that currently exist. This can mean anything from replacing damaged copper gutters with new copper gutters (instead of, say, aluminum), to replacing pricy hand-painted scenic wallpaper panels that can cost over $100,000 for a single room.
4) Remember to let your Insurance broker know if you plan to renovate your home immediately after purchasing it.
Most high net worth individuals do not buy a home and move into it before completing at least some cosmetic renovations. Standard homeownerâ€™s policies are not designed to cover homes that are under construction or renovation.
So, you must notify your insurance carrier to let them know that you are planning renovations. If you donâ€™t, your coverage may be at risk.
5) Seasonal/Secondary Homes may require additional loss prevention features.
Depending on the value of a seasonally occupied secondary residence, some insurance companies will require additional loss prevention measures, which can include anything from monitored low-temperature sensors (in cold climates), to caretakers who check on the home, to water shut-off devices, to generators â€“ and the list goes on.
Even if many of these add-ons are not specifically required, their presence often comes with significant credits that can save luxury homeowners bigtime.