Off Limits: What you need to tell your HNW clients about sublimits

The number of high net worth (HNW) households in Canada will reach 1.3 million over the next 10 years, according to projections by Investor Economics. For brokers, that means many more household contents limits.

A contents limit provides the broadest coverage for all items in a person’s home, but there are sublimits (secondary limits) within that coverage “on either a particular item or a particular type of loss,” says Joshua Elo, assistant vice president of high net worth with Aviva.

Jewellery, for example, has a sublimit – particularly for theft because it can be a high-theft item, Elo explains.

Indeed, almost 50,000 jewellery thefts (totalling almost US$1.36 billion in losses) are reported in the U.S. each year. And, Lemonade’s claims data from 2016 to 2020 showed 44% of claims involving jewellery were a result of theft.

Here in Canada, a single incident of theft resulted in over $1 million in jewellery being stolen from a home in Montreal’s affluent Outremont district in February 2020.

Say a household contents limit is $1 million and jewellery is capped at $50,000. “That still provides good protection for most insureds — it’s not like you’re left with nothing — but it sublimits the particular content category of jewellery from that $1 million to $50,000,” explains Elo.

“Most people think about their engagement rings and maybe if they have a few nice pieces [of jewellery],” he says, adding they may see a $50,000 sublimit as sufficient. But there are other items that many don’t think about, such as men’s watches, their children’s jewellery — even costume jewellery.

That’s where brokers can help. First, they need to explain the reason behind sublimits.

“It’s not about limiting coverage,” Elo says. “These are checks and balances for clients to understand what their real exposures are so we can identify them and make sure they’re covered.”

He adds, “When a client builds that personal relationship with a trusted broker, the broker generally knows that client’s hobbies.”

For example, the broker may know the client has an extensive wine collection, a number of diamond necklaces, a $20,000 custom-designed bicycle for triathlons. “These kinds of items have sublimits the average client isn’t going to think about,” he says.

Brokers can offer solutions and the best advice to ensure HNW clients are protecting the true value of any items containing a sublimit. Clients should always speak with their broker to make sure the coverage they have is right for them.

An individual schedule (or listing), which removes all caps, is one solution. It provides some increased coverages and guarantees a claim payout, Elo says.

“For instance, if you’re scheduling a piece of jewellery that was capped previously due to a sublimit, now not only are you ensuring that it’s protected completely, you’ll also know exactly what you’re going to receive if it happens to have a claim.”

A blanket floater is another. It provides a sublimit on top of the original sublimit.

“You might have a $100,000 blanket, so you get the $50,000 sublimit from the base policy, then an additional $100,000 from the blanket, which covers you in the same way,” he says.

For further protection, the client can even add in an individual schedule that will insure the item to an appraised or guaranteed value. According to Elo, 40% to 50% of HNW clients opt for added protection.

“Not everyone has the same needs,” he says. “Sublimits and the solutions for them are there to help address specific needs with specific clients, while providing a strong and broad base of protection for everyone.”

Feature image by iStock.com/Berkut_34