When you buy or build a high-end luxury home, the last thing you think about is having to rebuild it due to a disaster, such as a house fire or catastrophic weather event. Unfortunately, these kinds of disasters occur more often than you might think—which is why having the right insurance protection in place is so important.
Even if you already feel you have a sound insurance policy for your luxury home, now may be a good time to revisit your coverage. Specifically, you’ll want to make sure you have “guaranteed replacement coverage.” Otherwise, there’s a good chance you’re underinsured.
What is Guaranteed Replacement Coverage?
Guaranteed replacement coverage is designed to pay for a complete rebuild of your home, using like materials, quality of construction, and technique, should the need arise for any likely reason. What many luxury homeowners fail to realize is that standard home insurance policies rarely include coverage for the total costs associated with rebuilding a home from the ground up.
Guaranteed replacement coverage is not available from all insurance companies. However, most policies with this type of coverage will factor in all costs associated with rebuilding a home following a loss because the insurer inspects and catalogs the unique features of your home.
If MY Policy Reads, “Replacement Cost,” Isn’t That Enough?
There is a big difference between replacement cost insurance and guaranteed replacement cost coverage. The big difference is that there is no upper limit with guaranteed replacement cost because the insurer inspected the home and determines the proper insured value. Whereas with replacement cost, the upper limit is that which is specified in the policy. Recent loss experience and studies suggest that close to 57% of homeowners don’t purchase the limits of insurance they really need to rebuild their home, and unfortunately, insurance buyers only find out after a loss.
Why Your Current Policy May Not Be Enough
The current home insurance industry is extremely competitive, with insurance carriers all vying to provide prospective customers with the cheapest quotes. Of course, as a luxury homeowner, you’re more worried about the quality of your coverage than the price tag. Unfortunately, the high level of competition among carriers means that most insurance companies don’t offer guaranteed replacement coverage. This is due to the fact that this coverage can cost more because the insured value may be higher than the segment of the homeowners market they target. Determining the real cost to rebuild a home does require an inspection which has costs associated with that. Many people don’t understand the contractual limitation of “replacement cost” coverage and assume insuring the home to its market value is the same as a replacement or the all-in cost to rebuild it.
What this means for luxury homeowners who don’t even know guaranteed replacement coverage exists is that many policyholders are walking around thinking they’re totally covered in the event of a rebuild—when in reality, this couldn’t be further from the truth.
Factors Affecting Replacement Coverage Costs
If you’re a luxury homeowner, now is the time to check your home insurance policy documents; look specifically for guaranteed replacement coverage. If you don’t see it in your policy, give Kettle Creek Insurance a call. We’re here to help make sure you’re fully covered and that you’re not underinsured in the meantime.
Again, one of the reasons this type of coverage isn’t typically included in a home insurance quote is that calculating the exact cost of this coverage can be challenging. Many factors must be taken into consideration, including increases in labor and construction costs since the home was built, updates to building codes, and custom work that may be difficult or costly to recreate in a luxury home.
The bottom line is that luxury homeowners need to make sure they have guaranteed replacement coverage. Hopefully, you’ll never fall into a situation where you need to use this coverage—but it’s essential to have the protection and peace of mind. Otherwise, you may end up with a home insurance policy that only covers a fraction of what it would cost to rebuild your beautiful home as it currently stands.
In addition to making sure you carry guaranteed replacement coverage, it’s also important to make sure your coverage has been accurately calculated. This is where it’s useful to turn to a high-end insurance company that specializes in guaranteed replacement coverage on luxury homes. An experienced agent will be able to accurately determine your rebuilding costs and update them as needed to reflect building trends.