Insuring Your Dream Home: Does Your Homeowners Policy Cover Everything?

If You Haven't Reviewed Your Coverage Lately, Then The Answer May Alarm You

You bought your home because you fell in love with the custom features including the Italian marble mantels and the signed stained-glass windows. You added your own signature touch with hand-carved banisters and cabinetry crafted from rare woods by the finest artisans in America. Your home is a labor of love – and an expensive investment. However, does your current homeowners policy cover the upgrades you have made, and do you really know what it would cost to replace the special touches you treasure?

Startling News
Most people do not, according to a recent Harris Interactive survey. Of 1,000 affluent homeowners surveyed, 88% of them discovered that their policies did not cover as much as they thought once questioned by surveyors.

According to the poll, 94% said the value of their home had increased during the last five years but more than a quarter had not increased their coverage.

Coverage Is Available
Fortunately, there is insurance that covers the replacement of those details to the same level of artistry with which they were created. However, you should consult your personal insurance broker or NIA advisor to learn if you have that type of coverage now and how it will cover the replacement needs of your home, suggests Dale Krupowicz, manager of Kornreich-NIA’s VIP For Life Division, an NIA Group affiliate based in New York.

“To determine the amount of coverage, many insurance companies use formulas based on room counts, square footage, and other simple metrics, or they estimate the price for which your home might sell. But these formulas can substantially underestimate the costs to rebuild an expensive home with custom features,” notes Krupowicz. “On the other hand, you don’t want to over-insure and end up paying excessive premiums because your coverage is based on the amount you would get if you were to sell it. That is known as the market value, and includes the cost of the land your home sits on, which needs no replacement.”

Most insurance policies and insurers will provide coverage up to 120% to 150% of the value of your house. However, those policies may not cover a number of costs, including debris removal, architectural fees, the cost of employing talented artisans, such as masons and woodworkers, and the cost of reconstruction labor, which is often higher than new construction or home renovation.

If you want, and can afford, a policy with no limit coverage – meaning it will pay out whatever it costs to rebuild - you can obtain that coverage, but only from a handful of insurance carriers. A Kornreich or NIA For Life advisor can help you find the company that best suits your needs.

“Only a few insurance carriers will offer guaranteed replacement coverage to pay whatever it costs to rebuild and restore your home,” Krupowicz notes. “If your home is more than 20 years old or has not been appraised within the last five years, make sure your policy will compensate you for upgrades mandated by current building codes, particularly for electrical and plumbing. This has been particularly true in Florida and surrounding states where hurricanes more than a decade ago resulted in far more stringent building codes for exterior construction, particularly in the Miami-Dade area.

Affluent homeowners should also review their policies when they are making extensive improvements or renovations that involve expensive material changes. “This becomes particularly important in coops and condominiums where any major change to the original layout including interior walls, surface treatments, appliances and cabinets may require additional coverage.”

If you’ve made recent improvements and haven’t had the chance to have those changes appraised, keep copies of the invoices with contractors and artisans in a safety deposit box or some other secure offsite location should disaster strike.

Check for Accuracy
“If you need a precise number, ask your broker or agent to bring in an experienced appraiser,” notes the Kornreich-NIA executive. “A good appraiser will record and discuss detailed information needed to help estimate a fine home's rebuilding costs and even offer recommendations aimed at reducing the potential for loss.”

It may take months or even years to rebuild and restore a fine home to its original splendor. Ask your agent or broker about loss-of-use coverage, which covers living expenses to help you maintain your normal standard of living until your home is ready. Only a handful of policies provide unlimited coverage without a time limit; the rest provide limited coverage based on the percentage of your home’s replacement cost for a specified time period.

For more information on Kornreich-NIA's VIP For Life Division, including insuring your home to its proper value, contact Dale Krupowicz, 800-642-6650 or dkrupowicz.Kornreich@niagroup.