What to Know Before You Purchase Premium Home Insurance
By Kurt Thoennessen, CAPI
Premium home insurance provides broader and more specialized coverage for High-value homes, but there are many factors involved in purchasing this type of insurance that differ from the standard home insurance purchase experience. Owners of high value homes (I.E. $1,000,000 in rebuild cost or more) should be aware of these differences so they can make the best decisions for themselves, their home, and their lifestyle.
This article lays out seven factors for owners of high value homes to consider when thinking about purchasing premium home insurance.
Pre-Purchase Considerations for Premium Home Insurance for a High Value Home
- Characteristics of Premium High Value Home Insurance Carrier
First and foremost, you should be confident that you are, in fact, working with a premium home insurance carrier. Look for guaranteed replacement cost coverage, cash-out settlement options, HO5 vs HO3 policy offerings, risk management discounts, deductible waiver, cyber coverage, equipment breakdown coverage, and their ability to offer high limits of excess liability protection (I.E. $5,000,000 or more).
Most premium home insurance companies distribute their products through independent insurance brokers and agents. While purchasing a policy online can be a faster process, agents offer bespoke insurance program designs, personalized advice and the support of their agency’s resources for ongoing service.
- Minimum Account Requirements
Premium home insurance companies have minimum eligibility requirements. Homes valued at or above $1,000,000 are typically eligible for premium home insurance. These companies may also require a minimum of three lines of business (i.e., home, auto, and umbrella insurances), a high credit score (In states where they are legally permitted to use credit scoring as a rating factor), or a centrally monitored alarm system in homes above a certain value. It is critical to be aware of these guidelines to ensure a smooth purchase experience.
- Thorough Account Underwriting
Purchasing premium home insurance policies can be challenging due to the complexities involved with expensive homes. There are many high-value items to keep in mind and there may be other significant factors, like the location or design that add extra risk. Premium home insurance companies need a significant amount of information to understand the risks they are taking on. This could be as simple as providing names, address, alarm system information, and construction information. However, it could also include more substantial due diligence, such as obtaining an elevation certificate and wind mitigation inspection for a coastal home, claims information from the previous homeowner, or an earthquake retrofitting certificate for a home in an earthquake zone.
- Home Appraisal
There are two ways an insurance company will determine the replacement cost of a home:
- They use software to gather and analyze publicly available data regarding the construction features of a home.
- They conduct an onsite inspection of the home to gather information, photos, and other details.
It’s important to note that premium home insurance companies will usually conduct an onsite inspection, which leads to a more accurate assessment of the home’s replacement value. This could mean that the value will be higher than what another insurance company would find using software and public data.
- Risk Management
Premium home insurance companies want to help their clients avoid inconvenient and costly losses, so they look for hazards on the property and make intelligent suggestions to improve the resilience of a home. These hazards and subsequent suggestions are typically identified during the appraisal process.
Often, the homeowner can choose to make the recommended changes or not. Other times, they may be required to mitigate a hazard for the home to be eligible for coverage. Some examples of possible requirements include installing an automatic water shutoff valve in a home that had multiple water losses, cutting trees back from the house, or expanding the fire alarm sensors to unprotected areas of the home.
- Home Renovations
It is common for owners of high-value homes to initiate major renovations to their homes. Renovations bring a significant risk of loss to a property. Homes may be unoccupied, and construction workers often use heavy equipment, dangerous tools, and flammable materials.
Due to the significant risk involved with construction, insurance companies need to know about these changes. Depending on the size and scope of the renovation, premium insurance companies can handle these projects in a few different ways.
First, they could leave the policy as is and give their blessing to proceed. This is typical for relatively small renovations.
Second, they could add surcharges to the homeowner’s policy, to ensure they are charging a rate that aligns with the additional risk. They may also implement critical requirements, like a temporary alarm system or security lighting.
Third, they could request that a new policy, called a builder’s risk policy, be purchased during the renovation.
- High Deductibles
Many homeowners look to mitigate the cost of their premium home insurance by assuming more risk and taking on a higher deductible. Most premium home policies start with a $2,500 deductible, but options for $5,000, $10,000, and up are available too. It is important to be aware that a higher deductible means a reduced ability to submit claims and the homeowner could have higher out-of-pocket expenses as a result.
Insuring a high-value home can be a complicated process, but understanding the items stated in this article will make the process of purchasing premium home insurance much easier. It is recommended to discuss each point with your insurance agent or broker before making your decision.
CEO of RiskRevu and Personal Risk Advisor at Ericson Insurance Advisors