Don’t Let Your Homeowner’s Insurance Leave You Out in The Cold

Kareen Kinzli Larsen | RE/MAX Alliance

This is generally one of those topics that makes you think, “oh yeah, I should probably check that out someday.” If the tragedy of an insurance claim strikes, you are going to wish you had. This winter, you owe it to yourself and your home to take some time to ensure that you are properly insured.

Current replacement costs may have outpaced your policy.

Shortages of labor and supply chain issues have caused local building costs to skyrocket. If you have purchased your home more than 3 years ago, your homeowner’s policy may not cover what it would cost to rebuild or repair in the event of a significant loss. Ben Parson, of Ben Parson State Farm, suggests around $175 per square foot for a track or entry-level single-family home and up to $300 per square foot for a semi-custom home. High-end custom homes or homes in remote locations should be covered as high as $400-$500 per square foot.

You Get What You Pay For: Actual Cost vs. Replacement Cost. Most homeowners compare insurance policies on price alone, but insurance policies are far from equal.

Avoid this critical mistake and understand the exact coverage you are receiving. If you experienced a loss, would you be covered at the full replacement cost? Let’s use a hailstorm, Colorado’s most common insurance claim, as an example. You have a $1000 deductible, and your 10-year-old roof (half of its useful life) was completely damaged. It is going to cost $15,000 to have it replaced. A replacement cost policy would pay out $15,000 less than your $1,000 deductible or $14,000. If you have an actual cost value policy, you would be paid for the depreciated value of the roof based on age. Your roof has only half of its useful life left, so you would only receive half of the replacement cost value less your deductible, or only $6,500. The remaining cost to replace your roof would come out of your pocket. Is that a risk you can afford to take for lower premiums?

Do you know what isn’t covered?

Do you understand exactly what you are paying for, or more importantly, not paying for? Damage from floods (water coming in from the outside) is not covered by a typical homeowner’s insurance policy.

This includes things like rainwater that infiltrates through a basement window from poor drainage. Do you know if your policy covers the increased cost of replacement due to new code changes or municipal requirements? The City of Fort Collins now requires that any new roof installed have Class 4 Impact Resistant shingles. Would your current policy cover the additional expense? Does your policy cover a sewer line backup? How about your liability coverage, is it adequate?

Your personal property may not be covered.

Most insurance policies cover the damage or loss from theft of personal property up to the value stated on your policy, however, there are limits that may leave you improperly insured. Understand the value of your personal property, but more importantly, know the value of your fine jewelry and firearms.

Reasonable additional coverage exists for these valuable items that include damage or loss for any reason without a deductible. Do you run a business from home with valuable equipment? Your business property may not be covered in the event of a loss.

Understand your deductible.

This may seem like a no-brainer, but options for deductibles have changed in recent years. In addition to the options of a $500 or $1,000 deductible, you may have opted for a 1% or 2% deductible. This means 1% or 2% of the value of the improved property. What if your house is now worth $750,000 excluding the land? You essentially have a $7500 deductible. If so, are you prepared to pay this amount in the event of a significant loss?

Insurance is complicated, but fully understanding what coverage you have or what coverage you don’t have is essential. We recommend working with a knowledgeable and reputable local agent who can meet with you, understand your specific needs, and tailor coverage specifically to your situation.