Can I lower the Other Structures coverage limit on my million dollar homeowners policy?
By Kurt Thoennessen, CAPI
All homeowners policies include Other Structures coverage even if you do not have any other structures on your property. The cost of this coverage can be a major component of your homeowners policy's annual premium, especially if the replacement cost of your home exceeds $1 million.
What is Other Structures coverage?
Other structures coverage will pay to repair or rebuild outbuildings that are on your property that are damaged by a covered peril (e.g. fire, lightning, falling tree, etc...). Here are some examples of outbuildings: pools, fences, guest house, detached garage, docks, jungle gyms, helipads, gazebos, pool houses, sheds, barns, tree houses, sport courts, stone walls, and the list goes on. As long as these structures are not connected to the main residence, they will be considered an other structure and need to be covered by Other Structures coverage.
Formulaic policies - Outdated coverage design
In most cases, when a policy is created, the other structures coverage is set using the following formula.
Your home's replacement cost * 10% (sometimes 20%) = Your Other Structures Limit.
A home with a $1,000,000 replacement cost will automatically be given $100,000 of coverage for other structures.
- A $2,000,000 home * 10% = $200,000 of other structures coverage
- A $3,000,000 home * 10% = $300,000 of other structures coverage
- A $10,000,000 home * 10% = $1,000,000 of other structures coverage
Designing insurance policies using formulas is an antiquated methodology that causes many owners of million dollar homes to overpay for their insurance. Today, a personal insurance expert has access to detailed property information and tools that can help tailor each insurance policy to your needs rather than just creating another mass produced policy.
Getting this coverage right
Homes with no outbuildings on the property should not pay more for coverage they do not need. However, most mass market insurers do not allow this limit to be adjusted down. There are a handful of insurers who understand that other structures coverage needs are not the same for everyone and allow this limit to be reduced, which results in a premium reduction.
On the flip side, some properties require more than a 10% coverage limit for their outbuildings. Owners of these properties will benefit from working with a personal insurance expert and an insurer that conducts an appraisal to identify all structures on the property and then recommends an appropriate coverage amount to rebuild them after a loss.
Losses happen to outbuildings as well
The risk of damage to an outbuilding is very similar to the risks at the main residence. Fires, lightning strikes, hurricanes, earthquakes, tornados, flooding, trees falling, and frozen pipes are all perils that affect these structures as well.
The Importance of Active Policy Management
You may not have other structures on your property today, but you may in the future. If you work with a personal insurance expert to lower this coverage, you will also need to work with them to increase it when your situation changes. If you let your insurance advisor know your plans for installing a pool, guest house or any other additional structures down the road, they can include them in their insurance planning process.
Adjusting the other structures limit with a personal insurance expert will help ensure that you are not overpaying for your insurance or underinsured for a disaster. Without expert advice regarding this coverage, it is easy to see how the formulaic system for setting your other structures coverage limit can leave you in danger of experiencing either of these situations. Especially for homes valued over $1,000,000.
A new site will be launching soon that will assist owners of million dollar homes and other valuable assets make better insurance decisions faster. Please visit www.insurescope.com to be notified when we launch.