4 Insurance Considerations for High-Net-Worth Property Situations

As a person's net worth grows, so does the complexity of their financial picture. In many cases, this complexity can come from owning either a high-value home or multiple homes.

With higher-value homes—and what's stored inside them—come a greater need to ensure they're adequately covered for the risks associated with homeownership. Here are some things to consider.

Owning multiple homes

If you're a high-net-worth individual, you may own more than one piece of property—which could include a higher-value home. Most insurers define higher-value homes at $1 million and above, although the lower end can vary by location. Generally speaking, high-net-worth homeowners are more comfortable with and often carry higher deductibles of around $10,000 or more.

There are specific insurers who specialize in this segment both in the standard markets—including PURE Insurance, Chubb and AIG—as well as excess markets, like Lloyd's of London.

When insuring high-value homes, security plays a central role in the discussion. Insurers may require a certain level of security, including external cameras, motion detectors and special agreements with emergency services.

Insurance companies will also consider whether your homes are primary residences or rental properties—and whether this will lead to differences in deductibles, limits and required security measures. Having a quick reference guide for each of your properties and their corresponding insurance policies can be helpful as you review your protection strategy with a trusted insurance professional.

Here are some things to consider if you own a high-value home or multiple homes.

1 Preventing physical damage

Homeownership comes with a set of risks in terms of property damage—water damage from an internal or external source, electrical system aging and storm damage, to name a few.

With advancements in technology, it's fortunately becoming easier to mitigate certain types of damage that may happen due to failures in home systems, like detecting line breaks in water systems using installed sensors.

The damage due to catastrophic weather events is a prevalent concern among high-net-worth individuals. In fact, 62 percent of risk managers cited it as a key feeling of vulnerability for their clients, according to a 2022 survey conducted by the Private Risk Management Association (PDF). Damage from wildfire, floods or wind may be more acute in arid climates and coastal areas, which are more susceptible to these environmental factors.

2 Installing extra security measures

If your home has valuables or collections, you may be required to install additional security measures. Investing in a security system with live monitoring and connection to local emergency services can not only protect your valuables, but it can also help decrease insurance costs.

Beyond jewelry and high-end electronics, you can take other measures to secure valuables like fine art, wine and automobiles. Physical security measures, humidity and temperature controls, and protected storage can all be used at your discretion to add an extra layer of protection. Your insurer may also provide consultative services to authenticate and properly protect and store them.

3 Scheduling jewelry and other valuables

A scheduled piece of jewelry is a high-value piece that's added to a policy with coverage set at an agreed-upon value, typically the appraised value or amount on the bill of sale. The advantages of scheduling jewelry or art is that these items are covered anywhere in the world without a deductible.

Plus, a variety of perils are covered, including mysterious disappearances. For example, if an earring listed on the schedule is lost or misplaced—or if the insured simply doesn't know what happened to the item—it would be covered. This is often a major point of discussion when reviewing a policy, and it's one of the most underinsured areas we find when conducting initial policy reviews.

4 Understanding replacement costs

The replacement cost of a high-value home is another critical issue that can affect the competitiveness of a policy, as well as the ability to properly insure a home.

In this case, it's important to note the difference between market value and replacement cost. Due to recent supply chain issues and material and labor cost inflation, high-net-worth homeowners can easily find themselves with a significant gap between what their insurance policy covers and what the replacement cost would be if a catastrophic event occurred.

Over the past 5 years, there's been an almost 55% increase in replacement costs. Because of the highly detailed work in a high-value home, it's common to see replacement cost numbers at around $500 per square foot to rebuild. Homes valued at less than $1 million, meanwhile, are closer to $250 per square foot.

Another key point to remember is that land value isn't included in the calculation of a home's replacement cost. Many homeowners are considered over-insured because their land was included in their policy, but it often ends up being lost premium because no value is given for the land at the time of claim.

The bottom line

Inflation, the growing cost of natural disasters and punitive jury verdicts are all combining to significantly increase costs and limit coverage limits available from insurers. Customers will see the repercussions in their insurance program structure, while the increasing cost of insurance will likely impact the entire marketplace.

As complex as the high-net-worth market is, an annual review is an imperative part of the process—not only to determine the competitiveness of a policy's cost but also to learn whether existing policies reflect existing assets.

To start an insurance review to assess your own needs, ask your First Citizens wealth consultant or private banker to connect you to an insurance specialist at your next meeting.