When building a luxury custom home, it is important to purchase the appropriate amount of insurance.  That being said, choosing the right amount of insurance can be somewhat confusing until you understand what goes into it.

It is common for the amount of insurance on a custom luxury home to be different than the purchase price by a significant amount.  The homeowner may wonder why the two values are not the same.

The amount of insurance you purchase is important because it determine the amount of the premium you pay as well as the amount of benefit you will get in the case your home would need to be replaced.

If you have a mortgage on your custom home, the insurance premium is often included in the monthly payments you make to the mortgage company.  Therefore, the more coverage you get, the higher your payments will be to the mortgage company each month and vice versa.

Get too much insurance and you will be paying unnecessarily high premiums.  Get too little insurance and you may not be fully covered in case you need to replace your home.


Replacement Value

It is important to understand that your homeowners insurance coverage amount is based on replacement value and not market value.  This is why the coverage amount can vary so much from the purchase price.

Replacement value is the amount of money it would take to fully replace the home and bring it back to comparable condition to how it was before.  Market value is what you might expect to sell your home for.

For example, if the market value of your luxury custom home is $750,000 you may be able to sell it for that amount in the market, but when calculating insurance there are other considerations.  It’s helpful to think about what it would take to bring everything back to normal in the event of a disaster.

Your insurance would have to cover expenses related to:

  • Sorting through and cleaning the homesite
  • Rebuilding the entire structure to it’s former state
  • Replacing the value of all of your belongings inside
  • Temporarily housing your family during the rebuild process
  • Protecting your assets in the case of liability to others

Costs associated with each of these items will vary based on your local market and your insurance agent can help you determine them.  We recommend getting at least 3 quotes on homeowners insurance for your custom luxury home so that you can make a more informed decision.

We hope this was helpful and makes your next insurance purchase easier to understand.


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If you would like more detail on a particular building step, or have any questions, please email bryan@refinedcustombuilders.com or call/text Bryan at 713.851.4698.