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BESPOKE INSURANCE
Insurance policies to cover the possessions and property of the wealthy are far from one-size-fits-all. Their assets may encompass everything from multi-million-dollar estates to rare cars, wine cellars, yachts and priceless collections of fine art, so high-net-worth individuals ( HNWIs ) frequently turn to specialist insurance professionals and companies.
“ When advising clients on protecting their property, the first step is ensuring they have a robust insurance policy tailored to its value and unique features, including coverage for high-end finishes, smart home technology and additional structures such as guest houses or pools, ” says Chase Mizell, global real estate advisor, Atlanta Fine Homes Sotheby’s International Realty. “ I also recommend consulting a risk management specialist to explore excess liability coverage and flood insurance, even if their property is not in a flood zone. ”
For luxury homeowners, rebuilding a home following a disaster can be complicated. Many HNWIs invest heavily in bespoke architecture, custom finishes and rare materials that can be hard to source or replicate. Luxury homes also often come with bespoke features such as extensive landscaping, indoor swimming pools and advanced home technology, all of which can significantly increase the rebuilding cost.
Traditional home insurance policies, such as the state-sponsored California Fair Access to Insurance Requirements ( FAIR ) Plan, which has a maximum coverage of US$3 million, may not adequately cover these assets. Luxury homeowners may need policies that account for the cost of rebuilding with higher-quality materials and design services.
One important option is a guaranteed or extended replacement cost policy. “ Guaranteed replacement cost provides more coverage than standard replacement cost, ” says Carolyn Boris, vice president and product development manager, personal risk services, for insurance company Chubb. “ In general, guaranteed replacement cost means the insurer will repair, replace or rebuild damaged property to the same or similar design, using materials and workmanship of comparable quality. Depending on the insurer and the state where the property is located, the cost to repair, replace or rebuild may exceed the amount stated in a standard replacement cost policy. ” It can even cover an unlimited amount or a specified percentage over the policy amount, Boris adds.
While policies like these come at a premium, they offer valuable peace of mind. Guaranteed replacement cost coverage ensures that the homeowner won’t be left to cover the difference should rebuilding costs exceed the policy’s limit. “ All insurers that specialize in insuring high-value homes offer some form of guaranteed replacement cost coverage, though they may have different names for it, such as extended or enhanced replacement cost coverage, ” says Boris.
Items such as fine art, rare antiques, designer clothing, high-end jewelry and luxury watches are just some of the objects that can be damaged when a home is destroyed. Standard insurance policies often fail to account for the true value of such items, which is where specialized policies come into play. Any valuable item should be appraised by an expert to determine its current market value. Once the value is agreed upon, a specialized insurance policy can be created to ensure the asset is sufficiently protected.
“ We recommend that collectors update any appraisals on a regular basis to ensure items are insured in line with the market, ” says Laura Doyle, senior vice president of fine art and valuable collections product manager at Chubb. “ For most valuable objects, the recommended time frame for reappraisal is every three to five years. In more dynamic markets, such as post-war and contemporary art, we recommend reviewing values every one to three years. Insurance schedules should be updated with the most current values. Appraisal fees should be based on an hourly rate and never tied to the value of an item. ”
Wealthy individuals often hold their property in trusts to preserve wealth through generations and to mitigate tax liabilities. However, when it comes to insurance, the structure of the property ownership can add an extra layer of complexity. A common mistake among HNWIs is neglecting to have the trust named as the owner on the insurance policy. This oversight can create potential legal and financial problems if something were to happen to the property.
“ Holding a residence in a trust offers privacy, estate planning benefits and asset protection, ” Mizell says. “It allows the owner to control how the property is managed and transferred, while avoiding probate and potentially reducing estate tax exposure. It is critical that the trust is correctly listed as the owner on the insurance policy. Many insurers require additional endorsements or specific language in the policy to ensure proper coverage. Clients should work closely with their estate attorney and insurance provider to structure the trust appropriately and avoid coverage gaps. ”
Source: Visit the Sotheby’s International Realty 2025 Luxury Outlook report for essential insights. |
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