In a video shared on a recent home fire on Buggy Lane in Ajax, Ontario, you could hear someone state “I hope they have insurance!” Of course, we hope they do too. More important to note, no one was injured in the fire.
Thinking of that statement “I hope they have insurance” has me thinking of one important word that was missing – I hope they have adequate insurance.
If you are the owner of a high-value home, it is vital to work with an insurance broker who knows how to properly rate the property. All too often we see high-value homes, custom-built homes and homes with major renovations being placed on a Standard Build insurance policy.
*Video of house fire on Buggey Lane in Ajax. Source: John M. Meloche Youtube Channel
What is wrong with a Standard Build insurance policy?
Nothing for the appropriate home. But, if you own a higher-value or custom-built property, a Standard Build policy can leave you unnecessarily exposed to serious financial risk and/or hardship.
Consider the example of the home fire above. The home is in a neighbourhood of custom-designed homes that have current market values around $3 million. These homes often have beautiful interior renovations like high end electronic systems, home theatre setups, top of the line kitchens, bathrooms (beautiful big bathtubs!) and more.
Even without getting into details, it may seem obvious now that there is nothing standard about these homes.
What are the risks of insuring a high-value home with a standard home insurance policy?
Standard homeowners’ policies have coverage limits that are often largely insufficient to cover losses for high-value homes and the policy is designed to replace/rebuild with standard materials.
For example, if in the home there is luxury finishing utilized, high-tech electronic components (think of an intercom system), environmentally sustainable material (LEED materials), specialty interior construction, architectural design or some combination of these things which is all lost in the fire, rebuilding the home will likely be done with standard materials.
To reiterate, even if the home policy is insured with a Guaranteed Replacement Cost (GRC) but on a regular homeowners’ form, the home will be rebuilt not with like material to what was in the home before, but with standard materials.
If there is not Guaranteed Replacement Cost on the policy, the homeowner could find themselves in a big financial gap between what the home is insured for and what it is worth. Imagine, if it costs $1.5 million to rebuild a home (with standard materials) that is only insured for $750,000, the homeowner is now on the hook to make up the difference or settle for a lower cost to rebuild.
There are often limits for other possessions as well. A standard policy assumes there are standard items/contents in the home. If a basement has a custom bar, theatre system, classic arcade games, etc., and none of these things are specifically detailed in the insurance policy, it will be tough to get anything replaced close to the value of those items.
Why does this happen?
High-value homeowners get standard homeowners’ insurance policies for three reasons – price, broker knowledge and their information intake process.
- Price – we know many people think insurance is expensive. Unfortunately, many do not realize the value of having the appropriate coverage until there is a loss and the homeowner needs to make a claim. To win the business, a broker or agent may look at the lowest cost option as they are in such a competitive industry.
- Broker/Agent Knowledge – insuring high-value properties requires specific knowledge, attention to detail and being able to put ourselves ‘in the home’ of our clients. This includes asking the right questions, detailing in the policy the items/materials/additions/customizations in the home and more. This would also include the property, additional dwellings or buildings on the property, toys (ATVs, Snowmobiles, etc) and more. It also often includes discussions with insurance carrier underwriters to work together to come up with a best-in-class solution at a good rate for the client.
- Information Intake Process – Although it does not always seem this way, we are a technology driven industry. Brokers and agents sit in front of a computer, ask questions, input answers and determine the best solution based on algorithms in the system. Interrupting that process to properly assess the risk does not always happen. This leads to policies being issued with inadequate coverages.
What can I do to ensure my high-value home is properly insured?
The simple answer is to partner with an insurance broker that understands the intricacies of insuring higher-valued and custom-built homes. There are many other features of high-value home policies that are important to understand and discuss with a qualified broker.
Given the increase in home values and recent trends to upgrade our current homes instead of moving to a new one, you may be left wondering whether your home is considered in the high-value home category.
Let’s discuss your situation. At the end of the day, everyone deserves peace of mind knowing the home they and their family live in is protected.
Book a call with myself or one of my fellow home insurance specialists.