The biggest challenge with a luxury home is trying to determine a value to rebuild the home. Most luxury homes have a lot of customizations and usually will have some unique architecture. A thorough analysis is crucial to insuring the home at the right amount of coverage so the homeowner is able to be made whole again in the event of a loss.
Another challenge home owners face is that SOME companies replacement policies will not rebuild with upgraded features. They will only repair/rebuild the home with standard or contractors grade materials. Read your policy carefully.
The last challenge is the amount of insurance. Again, SOME companies will not write insurance on a home over a certain value, lets say $750,000. If the home will cost $1,500,000 to rebuild, some companies will not want to write the insurance on that home. The challenge is that you have less options when looking for rates to compare.
The good news is that companies that specialize in luxury homes, like Lexington or Fireman's Fund, have policies that are rich with coverages and priced to attract the customer they want to insure.