High-End, High-Risk

High-end homeowners worried about being fully insured may look no further than the recent tragic outcomes suffered by victims of the FourMile Fire: policies that were not kept up to date, underinsured homes or homes not insured at levels covering rebuilding costs, possessions not itemized — all of these are big concerns for high-end homeowners, insurance specialists said.

And when setting their policies, high-end homeowners “should be willing to invest a little time,´ said Brent Friesth, who has owned his Boulder-based American Family agency for more than 22 years. “They should find an agent who has some experience with high–end homes — someone who knows where those holes are going to be.”

In general, most of us tend to look at insurance as covering the value of the home, but what it actually covers is the cost of rebuilding or repairing a home.

“It’s Insurance 101, but it gets overlooked by customers,” Friesth said. “The insurance will only pay the value of replacing the house. So if the house is worth $3 million, but the cost of replacing it is only $1.2 million, that’s what will get paid.”

And while that may seem a technicality for most homeowners, it’s a very serious point for more-expensive homes. Insurance can’t cover a loss in value from the aesthetic loss from, for instance, a wildfire.

However, insurance should be set up to cover that actual cost of replacing what is lost in a structure. That’s extremely important with expensive homes, which almost always have expensive finishes.

“The first considerations are going to be the importance of those upgrades — the cabinets, the flooring and the fixtures,´ said Brad Hughes, owner of his State Farm agency in Louisville. “When it’s a higher-valued home, they should take into account their plumbing fixtures, their walls — the stonework is a good example, you won’t find that on a lower-valued home.

“We need to do a valuation for those items, and a good agent will take a long look at that,” Hughes said.

In general, Boulder and Broomfield counties are fairly easy locations to insure high-value homes. While insuring homes in the wildfire-prone areas will be more expensive, there aren’t actual special riders here to insure a home for wildfire damage, and in general, high-end homes pay the same rates as average homes.

“Generally speaking, it’s going to be relative to the risk and the value,” Friesth said.

However, Boulder County and the city of Boulder also have wildfire and energy-related “green” codes that should also be taken into account, as they will affect the cost of rebuilding.

“Everyone needs to be aware of that, and there’s coverage that can be added,” Friesth said. “For instance, for a home up against the foothills, adding a fire-suppression system (to a damaged home) could add $100,000 to the replacement cost.”

Where policies may differ widely is the amount that can be paid for lost personal possessions. Again, that’s a huge point for people with high-value homes, who probably also have high-value possessions, whether they be antiques, artwork or jewelry. In some policies, there will be upper-end limits to such possessions, such as a $10,000 limit to replacing jewelry; so many items would need to be covered by a personal possessions policy.

“In Colorado, that’s how it’s defined under any home contract,” Hughes said. “Coverage A refers to the dwelling itself and anything that’s permanently attached. Coverage B is their personal belongings, the loose items in their homes, such as a washer, dryer or refrigerator.

“We need their help with these items to help us calculate the value, but together we can make sure the home is properly insured,” he said.

“One thing high-value homeowners tend to forget is the value of their outbuildings,” he said. “For me, that’s probably a Tuff Shed, with minimum value, but you do need to consider the value of a three-car detached garage or a barn with a work shop and an art studio.”

Today’s fluctuating market means homeowners should be taking a long look at their policies on a regular basis, even though contracting costs may not be fluctuating as quickly as home values.

Even more important is that new home buyers should sit down again with their insurance agents as they add expensive items to their homes. A second look at the insurance policy may be a good idea once things have calmed down after the flurry of decisions that were made in closing on a home.

“In that closing, things get rushed and hurried,” Hughes said. “The policy holder may have done things just to get things done, but perhaps it’s not as comprehensive as they wish.

“Most of the people in that room (during a closing) have moved on to other sales, but we’re the one person who was at that table who is still there for the homeowner.”

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