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When it comes to homeowners insurance, a standard, (HO3) policy is great for the average homeowner. However, when it comes to a luxury or high-value home, basic form homeowners insurance isn’t going to cover all of the home’s insurance needs. Larger and/or more expensive homes need high-value homeowners insurance; specialized products built for high-end homes, with specific coverages, larger schedules and higher limits. These policies are usually written on a HO5 policy.
What do insurance agents need to know about helping the luxury homeowner?
A lot of high-value homeowners don’t know they are inadequately insured.
In some cases, the homeowner may assume an HO3 Homeowners is adequate. Maybe it was when they purchased the home but they may have made renovations or improvements that have increased the value of their home, but didn’t realize they needed to increase the replacement cost. The HO3 form covers Replacement Cost for the building itself but the amount showing for Building coverage needs to be reflective of that amount. Agents should carefully review a client or potential client’s existing policies to ensure they are properly covered. Take special care to make sure the home is valued for Replacement Cost, (the cost to rebuild) and not just the appraised real estate value. Homes also need to adjust for inflationary increases from year to year as well to reflect the increased cost of building materials. A home that is valued over $1M, may have unique features that are more costly to rebuild or replace. The owner should consider an HO5 policy.
What’s the difference between HO-3 and HO-5?
HO-3 is also called a “special form” policy and it’s the most common type of homeowners insurance that an agent can offer their client. It covers all risk on the Building and Broad form on the Contents. Special form or all risk as it can be termed covers everything but what is specifically excluded in the policy form. It usually covers a home and any attached structures, as well as personal property and liability.
HO-5 is strictly an open peril policy or special form/all risk policy covering the Building and Contents, which means it protects from all perils, unless specifically excluded. It’s usually more expensive than the HO-3 and is the broadest type of homeowners coverage possible.
What should coverage include on a high-value homeowners insurance policy?
Policies should include sufficient coverage to provide replacement cost to restore/repair the house to its original state, high liability limits for asset protection and a schedule for coverage of valuable articles. Also included is additional living expenses for temporary relocation during rebuilding. Other important coverage to include would be Water/Sewer Back up, Equipment Breakdown, Utility Service Line coverage, Identity Theft or Cyber Liability. Earthquake and Flood are other coverages that should be considered based on where the home is located.
A high-limit umbrella policy may be beneficial for your high-value homeowners.
This coverage increases the policy liability limits to meet the needs of the homeowner in protecting their assets if a claim is brought against the Insured as a result of a liability loss on their property or as a result of their negligence.
High-value home insurance can be a great asset to an insurance agent’s business, as long as agents are knowledgeable about the unique needs of these clients and are partnered with a carrier that serves this niche.
About Mavon Insurance
At Mavon Insurance, we pride ourselves on our unique approach to insurance. We focus on integrity, communication, professionalism, respect and gratitude to help our clients succeed and place business in specialized markets. For more information about our products or to become an agent, please contact us today at (855) 248-1480.