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Homeowners Insurance: Do You Have Enough and the Right Coverage?

On December 30, 2021, the Marshall Fire roared through areas of Boulder County, destroying everything in its path. Fueled by wind gusts of up to 100 mph, the fire quickly grew out of control, and 1,000 homes in Superior and Louisville burned in a matter of hours.

As homeowners begin to pick up the pieces and take next steps with their insurance companies, some will find that they do not have the right coverage or enough coverage to fully recover from this tragic disaster.

Do you know if you're prepared for a similar situation?

If you're not sure, now is the time for a homeowners insurance review to prevent being underinsured.

Homeowners Insurance Coverage Options

When purchasing or renewing a home insurance policy, remember that your home is likely your biggest asset. Insure it accordingly. If you can afford it, more is better, especially when there are so many factors that go into proper coverage. 

Read through everything, ask questions, and make sure you understand your coverage, limitations, responsibilities, the claims process, and all that insurance lingo like "peril" and "depreciation."

For starters, there are different levels of coverage available for your dwelling and its contents. Here are the typical options:

  • Actual Cash Value – The policy covers the cost of your home and the value of your possessions, minus depreciation at the time of the loss. This will always be less than what it would cost to replace things. 

  • Replacement Cost – This covers the cost of rebuilding or repairing your home, as well as replacing your possessions without a deduction for depreciation. This allows you to repair/rebuild only up to the original value of your home—like for like.

  • Extended & Guaranteed Replacement Cost – A guaranteed policy pays whatever it costs to repair or rebuild even if it exceeds your policy limit. Extended will pay a pre-determined percentage over the limit, typically 20-25% maximum.

While a guaranteed policy is pricier than the rest, it provides invaluable peace of mind. It means you can rebuild even if lumber costs spike due to supply chain issues. It means that if there's a widespread disaster that causes increased building costs, you're likely fully covered.

Also, talk to an insurance professional about additional coverage and separate riders based on your location and specific needs. Make sure you're covered in case of a flood, earthquake, or an infamous Colorado hail storm. 

Look into a separate policy, endorsements or additional coverage for things like a detached garage or high-priced possessions like antiques or jewelry—even repairing or rebuilding your home to new construction codes and standards (ask about Ordinance and Law Coverage).

Finally, don't forget to consider coverage for Additional Living Expenses (ALE) which will reimburse you for expenses such as a hotel room and the added cost of eating at restaurants should your home be destroyed or become uninhabitable due to loss. While most policies have 12 or 24 months of coverage, 24 months is recommended.

Keep an Inventory & Conduct Frequent Reviews

Before, during or after purchasing an insurance policy, thoroughly document the contents outside and inside of your home to make sure that you're properly covered and that you can be accurately reimbursed if you ever need to make a claim.

You can start with a video walk-through where you open every drawer, closet and cabinet then describe all the contents. You can also take photos of your possessions, especially high-ticket items such as a TV, appliances, furniture or your wine collection.

Next use an app or simple spreadsheet (preferably stored in the cloud) to create a detailed home inventory list that includes: 

  • Item description with info like quantity, brand, make, model, or serial number 
  • The purchase price or appraised value of the item (e.g. original art)
  • Where and when the item was purchased
  • Estimated replacement cost if you were to buy it again today

Along with a comprehensive inventory list, keep a digital and/or physical file with invoices, receipts, contracts, bank/credit card statements, or other proof of payment for your possessions. Make sure any physical documents are stored in a fire-proof safe for added protection. 

If you already have a policy, be sure to update your inventory list and conduct an insurance review with a professional at least once a year.

During the review, you may find a need to increase your insurance coverage. You may have purchased an expensive new washer and dryer set or completed remodeling your home—updated the kitchen, replaced the furnace, installed a hot tub, or built an addition onto your home. Take the time to talk to your insurance agent and make any necessary changes to your policy.

What to Do If You Experience a Loss

Once any danger has passed, get in touch with your insurance company to file a claim and start documenting the damage. Don't touch anything, but take photos of everything. If possible, get photos of unaffected areas for comparison. 

Your insurance company will send an insurance adjuster to inspect and estimate how much it will cost to repair or replace what was lost. Be prepared to provide them with your detailed inventory list, receipts, photos, and anything else you’ve collected. The adjuster will then review your policy and determine what will be paid. 

If you are not satisfied with the settlement offer, you can negotiate with the insurance company. You may also want to hire a public insurance adjuster who will advocate on your behalf and help you maximize your insurance benefits. They can also review your policy, find all available funds to recoup your losses, and push to get everything you're entitled to receive. 

You can also reach out to United Policyholders (UP), a non-profit organization that provides a ton of resources and workshops, and can connect you to individualized support professionals.

Don't Wait Until Disaster Strikes

Of course, there's still a lot to learn about homeowners insurance policies. But as many people discovered just a few weeks ago, a total loss can happen in the blink of an eye. So, don't wait. Review or purchase a policy that gives you peace of mind. Make sure you have a detailed inventory of your possessions. It's always better to be safe, even overly prepared, than in a situation wondering how you'll ever recover.

Further Reading

Homeowners Insurance Guide: A Beginner's Overview

How Much Homeowners Insurance Do I Need?
Insurance Info Institute

Making an Inventory List
Best Home Inventory Apps
How to Make a Home Inventory List for Your Insurance
How to Create a Home Inventory

Yearly Insurance Review
Home Insurance Check-Up: Questions to Ask Your Agent

Filing a Claim
What Happens When You File a Homeowners Insurance Claim?
How to File a Homeowners Insurance Claim
Public Insurance Adjusters: When To Hire One And Why

Note: This blog is for informational purposes only. Always work with a reputable professional when determining your insurance needs.

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