An Intro to Insurance Sublimits

You may have heard about sublimits, especially if you recently discussed policy details with your insurer. Sublimits can have a significant effect on the coverage available to you under many different kinds of insurance policies. This article will cover the basics of sublimits so that you an understand what they are and what they mean for your coverage.

What Is a Sublimit?

Let's start by clarifying just what a sublimit is. A sublimit is a limitation placed on a policy that reduces the amount of coverage available for a specific type of loss that falls within a more general category of loss for which there is a higher limit.

Let's clarify the concept by looking at an example. In most homeowner’s policies, personal property is insured either at actual cash (fair market) value or at replacement cost (for more details about your homeowner's policy, see Breaking Down Your Homeowner's Insurance Policy, from Coverage A to E). But sublimits often apply for specific kinds of property. A typical sublimit for loss of jewelry is $1,000; for loss of firearms, $2,000; for loss of gold or silver coins, $200. That means that if you have a collection of gold coins worth $50,000 and the lot are stolen, you will be covered for only $200 even if your personal property coverage (without sublimits) far exceeds that amount

Why Are Sublimits Put in Place?

Insurance companies use sublimits to limit their exposure to risk, especially when it comes to items that can easily be used to file fraudulent claims ("Gee Mr. Insurance Agent, my house burned down and I lost my $50,000 collection of gold coins. Please pay up.")

Sublimits are clearly set out in all insurance policies. But even if your policy has a number of sublimits, they won't be clustered together on the document. The sublimits for jewelry, firearms, and gold or silver coins, for example, will be set out in the portion of the policy that provides for property coverages.

For about 20 years now, insurers have been endeavoring to replace the legalese traditionally found in the language of policies with more "user friendly" English. This means the sublimits in your policy should be understandable to someone without a degree in law or finance. But, as always, you must read your policy—all of it—to be sure you comprehend the limits on coverage.

Some Examples of Sublimits

Cyber Coverage

While cyber coverage might seem like something that large organizations like Yahoo! and Home Depot might purchase, you might need it too if you have a small, internet-related business (although note that cyber breach insurance for individuals is one of our 8 Types of Insurance Most Americans Should Avoid).

When cyber policies were first offered, the sublimits on them tended to be excessively stingy: a policy that offered a $5 million limit on liability might have had a sublimit of $100,000 for forensic (to determine the extent of the breach) and notification costs. Coverage for regulatory fines and penalties might also have had a $100,000 sublimit (so long as those regulatory issues didn't count as an Uninsurable Risk). On top of that, there were often time limits: if your site was down for fewer than eight hours, you might not have been covered under the business interruption coverage.

As the internet has matured, so has cyber coverage and insurers now tends to be more generous. Still, every policy is different and if you are shopping around for cyber coverage, pay attention especially to whether the policies cover reputational harm, loss of future revenue, costs to improve internal systems to prevent future breaches, and lost value of your intellectual property.

Personal Property

In insurance policies, including homeowner’s policies, personal property is generally considered either "unscheduled" or "scheduled." Unscheduled property is subject only to the broad limits of the property coverage; scheduled property is subject to sublimits.

If you have personal property worth more than the sublimits in your policy, you can purchase optional coverage that specifically itemizes property you want to cover at higher limits. In addition to jewelry, firearms, and gold or silver coins, you might consider also consider including furs, musical instruments, silverware, golf equipment, fine art, photography equipment, stamp and coin collections, business property stored at your home, watercraft, replacement of locks, and stolen credit cards (learn more about Boat and Watercraft Insurance).

If there are any particularly valuable items in your home that you want to insure, you should discuss them with your insurance agent at the time you purchase your policy. With respect to items such as jewelry and firearms, be sure to let the agent know the full extent of what you want covered. If you have a collection of 100 pieces of expensive jewelry or 75 collector's item rifles, you most certainly need to bring this up so they can be insured under optional coverage provisions, such as jewelry insurance.

Business Interruption

If you own a business, any interruption in your ability to provide your services can result in a significant loss of income. Your policy can cover losses resulting from service interruption (direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility service), contingent business interruption (damage to suppliers' property), leader property (damage to nearby businesses or other properties that attract business to you), and interruption by civil or military authority.

Sublimits often apply to these coverages. Be sure to discuss your needs and budget with your agent when purchasing your policy. Your agent is the expert when it comes to what makes sense for your business in your location.

Conclusion

Always ask for a copy of a policy before you buy. Sublimits are not hidden away and you'll be able to find them with a careful read.

If you have any items that might need to be covered that have particular value to you, that are mentioned in the policy as "scheduled" items, or that are included in any paragraph concerning sublimits, discuss additional coverage options with your agent.