You really do need "luxury" coverage!

With gaps likely in your present policy, an upscale version might save you a fortune tomorrow—without costing one today.

By Brad Burg
Senior Editor

"We were taking inventory in a surgeon's home when the appraiser looked up and said, 'What's that?' " recalls Carol Quaif, president of MAG Mutual Insurance Agency, an Atlanta-based company that deals exclusively with health care professionals. "It turned out to be a $45,000 Baccarat-crystal chandelier—which our client hadn't mentioned. In fact, we discovered that the doctor had a houseful of items like that; he'd never been properly insured before that day."

Seriously inadequate coverage is common among physicians, and not just among the wealthiest, says Quaif. "Physicians often don't pay close attention to policy limits, or they neglect to itemize possessions properly, or both." With ordinary home insurance, you almost certainly need special endorsements and add-ons to adequately cover your possessions. Moreover, coverage on the house itself may have big gaps.

Rather than try to fill those gaps with add-ons and special coverages, which can be difficult, consider "luxury" insurance. You may have heard of this insurance and assumed it's for people with mansions full of Louis XIV pieces—and priced accordingly. But even if your only antique is that refrigerator you keep meaning to replace, you should consider such a policy. Robert Hunter, director of insurance for Consumer Federation of America in Washington, DC, is a tough critic of insurers, but even he says, "Often, the upscale policies give you good value for a reasonable price."

Here's what such a policy typically offers:

Unlimited replacement cost on your house. "After the chain of natural disasters that have hit various regions in recent years, most regular policies don't have no-limit coverage," explains Loretta Worters of New York's Insurance Information Institute. "If there is any leeway, it's typically capped at 125 or 150 percent of the face amount."

That can fall short. A natural catastrophe might drive local rebuilding costs sky-high, for example. Moreover, you may be seriously underinsured even for partial damage way under the policy limit. "Suppose 50 percent of your house is damaged in a fire," says Jim Salisbury, an insurance agent in Walnut Creek, CA. "You may have to tear down the entire house and rebuild it to bring it up to modern building codes for, say, heavier wiring and insulation—or even sprinklers, as in some California counties. Your insurance, however, will only pay to reconstruct that damaged half, unless you have sufficient 'ordinance and law' coverage."

With most luxury policies, this would be no problem, because they typically cover unlimited replacement cost, including such rebuilding-to-code expenses. Deluxe coverage also typically comes with assurances that replacement materials will be of the same quality. There are exceptions to these terms, though, particularly in hurricane and earthquake zones. In Florida and California, for example, Fireman's Fund caps home replacement at 200 percent of the insured amount; Chubb limits it to 150 percent in those states and in eight others.

Plenty of hand-holding. If your insured value is accurate, your coverage is likely to be, too; and luxury coverage often bundles in the expertise needed to achieve accuracy. "We'll come to your house, measure the rooms, inspect, and appraise," says Michelle Kenney of Fireman's Fund. Not only will insurers explain what lists of possessions you need to keep, they'll provide advice and help in preparing the lists. They also may provide appraisers when necessary. Companies such as American International Group, Atlantic Mutual, Chubb, and Fireman's Fund will even create photo inventories of your prize possessions. They can typically provide detailed consultation for art collections, antiques, and other special possessions.

Coverage for more perils. Your ordinary homeowners policy is probably called "all peril," but exceptions always apply. Water damage, for instance, is one area where the exceptions threaten to drown the rules. Here, as well, the high-end policies promise fuller protection. Says Kenney, "With our Prestige Plus policy, water damage from backup of your sewer or drains or overflow from a sump pump is covered." Some deluxe insurers, such as AIG, even cover damage caused by domestic pets.

Luxury policies generally exclude some perils, however, such as damage caused by termites and carpenter ants. Regional variations also exist. For example, earthquakes may not be covered in some locales. And in hurricane-prone areas, coverage for wind damage may be available only with high deductibles and may depend on what state law mandates.

Better contents coverage. Ordinary insurance may provide inadequate contents coverage. With cash-value coverage, you may get little more for your possessions than you would at a garage sale. Even if you have replacement-cost coverage, most policies will limit that to 50 or 70 percent of the house's insured value. Moreover, dollar limits typically apply to certain valuables—$1,000 or so is common for jewelry and furs, with similarly lowball caps for collectibles, computers, and business property. "Frequently, those limits are way too low to adequately cover a middle-class home," says agent Quaif. "So you probably can't find a physician who doesn't need special endorsements."

Luxury policies provide better basic coverage, and often more flexibility. With Chubb, for instance, the basic contents coverage is 50 percent of the house's insured value, but you can negotiate coverage for a higher level (or one as low as 20 percent, for vacation homes). AIG offers leeway in contents coverage, too. Atlantic Mutual offers a way to automatically link your contents coverage to the guaranteed replacement cost of the home. Specific limits can apply to valuables, though with an upscale policy, the jewelry limit might rise to $5,000, and silverware coverage might jump from $2,500 to $10,000.

High-end policies can also spare you a logistical nightmare that can occur even if you have replacement-cost coverage, says insurance agent Jim Salisbury. "Often, an ordinary policy will provide just the cash value up front," he explains, "and you get the balance when you buy a replacement item. You may have to complete the purchase within a time limit, too, which can be a problem, especially if you have no house to put things into." With luxury coverage, though, you'll typically get the full reimbursement cost up front.

Better "loss of use" housing coverage. When damage forces you to move out for a while, typical home insurance might cover your interim housing costs for one year, max. Or it may include a dollar limit, like 20 percent of the policy's face value. Even some upgraded coverage, such as The Hartford's Distinct Advantage policy, includes limits. And limits can mean troubles. "It might take months simply to get permits to rebuild," says Salisbury.

The poshest policies impose no time limits for rebuilding, and pay to keep you in the level of housing you're used to. Fireman's Fund, for example, has reimbursed insureds for stays at luxury digs like the Beverly Wilshire, says company spokesperson Michelle Kenny. And Chubb's Mary Ann Avnet says, "If your vacation condo burns down, we'll try to put your family into something truly comparable—and just as close to the beach."

Coverage for the beach house. Does your current home insurance cover your vacation place, too? Restoration of the land and landscaping? Theft during construction? Vandalism even after your home is vacant more than a month? Will it adequately reimburse you for damage caused by power interruptions? Probably not. And such coverages are the sort you may never think of adding—or notice as possible holes in your policy.

Luxury policies can plug all these gaps, and more. Chubb, for instance, pays up to $25,000 to help you recover from identity fraud. That protects you, say, if a hacker uses your bank account or Social Security number.

You'll get other extras, as well. High-end policies are more likely to cover "mysterious disappearance." No, not abduction by aliens—a claim for missing items, without the police theft report that policies typically require. After damage, you'll also probably have the option to receive cash payments for your house or its contents, instead of being required to rebuild or replace them. (That customary requirement is to prevent classic insurance fraud—in which the insured destroys property as a lazy man's way of "selling" what's no longer wanted.)

Sometimes, companies include what amounts to multipolicy coverage. Atlantic Mutual's Master Plan will cover up to three residences, for example. The personal liability coverage that goes with most home insurance is expanded, too. "People typically buy umbrella insurance to get protection against libel and slander," Avnet says. "But our Masterpiece coverage automatically includes libel and slander, as well as directors and officers coverage, which protects people who serve on nonprofit boards without remuneration." And you can often combine such deluxe policies with umbrella insurance for higher limits. You should probably consider doing so, in fact, since the two policies must be coordinated to eliminate gaps.

Then there's the truly above and beyond. If your home is in a rural area, AIG will help the local fire department map out a water-supply strategy, says Ross Buchmueller, president of AIG's new Private Client Group. His company will also help with other high-level householder concerns, Buchmueller adds. "We've consulted with a doctor during construction of his dream house, to help him pick a security system. We also have experts on call to run background checks on nannies and other employees."

What will it all cost? After this rundown of what luxury policies have—and what your policy may omit—it's probably clear that trying to patch all the holes that concern you could prove nearly impossible. Not only would you feel you're writing your own policy, you'd be adding costs in an inefficient way. "If you try to get all the desirable extras as separate endorsements, you're almost sure to spend more than you would by simply upgrading the whole policy," says T.C. Murphy of The Hartford. "At our company, for instance, by paying just a little more, you get full replacement coverage for the home's contents; that's a big increase in value, for a relatively small cost."

How much is a little more? That varies, but in general, insurers estimate that premiums might run only 10 to 30 percent more for luxury policies than for ordinary ones.

Why so reasonable? "The insurers offer good deals on these policies because they're hoping to do plenty of other business with wealthier clients, once they establish a relationship," says consumer advocate Robert Hunter.

Still, not every policy is such a bargain. "I've received quotes that were almost twice what a client was paying for ordinary insurance," says Gary Schatsky, an attorney and financial planner with offices in Albany, NY, and New York City. He has also seen prices for the same policy vary significantly from agent to agent. So give agents or insurers a clear picture of your requirements, and get several quotes.

You can lower your premium by accepting a bigger deductible. "Some of our upscale clients don't mind self-insuring for $10,000, or even more," says Michelle Kenny of Fireman's Fund. "They save a few hundred—and what they're interested in is coverage for major disasters."

Be aware that some companies focus on homes in a certain price range. The Hartford aims its Distinct Advantage product at homes in the range of $300,000 to $700,000. But if you're concerned about coverage of a truly upscale home—not just the replacement of luxury materials, say, but historical reconstruction—you might check with AIG, Chubb, or Fireman's Fund.

For more information

To learn more about high-end homeowners coverage, contact the following insurers and ask about the coverage terms in parentheses:

American International Group (Private Client Group), 212-770-6042, www.aigdirect.com.

Atlantic Mutual (Master Plan), 800-444-6565, www.atlanticmutual.com/individuals/masterplan.cfm.

Chubb (Masterpiece), 800-248-2275, chubb.com/individuals/residence_home.html .

Fireman's Fund (Prestige Plus), 888-771-4705, www.firemansfund.com/products/personal/home/hopp.html.

The Hartford (Distinct Advantage), 800-843-7824 (to locate an agent), www.thehartford.com .

 

Brad Burg. You really do need "luxury" coverage!. Medical Economics 2001;14:38.