Here in Colorado we recently had an event that destroyed over 1000 homes. Unfortunately we are hearing terrible stories about the victims of that fire being underinsured. Insurance policies are purchased with the expectation that they will cover damages and make the insured “whole”. The results of this event and the complaints coming from it are under investigation to discover if there is a systemic problem or if these situations are individual issues.
Insurance agents can help evaluate the cost of reconstruction and insurance companies provide tools for doing just that, but the ultimately the amount of coverage on a policy is the customer’s choice. Here at Brukhouse Insurance we run reconstruction cost estimates with several carriers when we first insure a client. After that we periodically check that estimate down the road at renewals. Even with this process there can be gaps created by local events, the economy and major disasters like the Marshall Fire.
What can you do to make sure that your insurance protects you in event of a loss?
You can take several steps to prevent being underinsured. Here are three things plus one bonus coverage to check.
Check your replacement cost estimator
First of all, if you have not checked your Dwelling coverage and Replacement Cost estimate in a few years do this right away. There are several market influences that have likely put these out of balance such as inflation, labor costs and your local housing market. A Replacement Cost estimate is just that, an estimate of what it will take to replace your home as it stands today. Your Dwelling coverage ought to match or exceed whatever the Replacement Cost is.
Check for RC over ACV
Second, check your policy to see if you have Replacement Cost (RC) coverage or Actual Cash Value (ACV). While an ACV policy is somewhat rare, there are situations that call for this. The difference between RC and ACV is that ACV factors in depreciation and pays some lesser amount than the Dwelling amount shown on your Declarations page. Here in Colorado on the Front Range, having ACV on your roof is becoming more common. You need to be aware of this to avoid a major surprise after a loss. Whenever possible, go for RC.
Look for Extended Replacement cost
You have an RC policy, you have checked the Reconstruction Cost estimate and everything looks great, there is one more step. Make sure your policy has Extended Replacement Cost coverage. This is automatic with many carriers but not all. Even if it is automatic, make sure you have the right amount. We recommend 50% Extended Replacement Cost. This means that whatever your Dwelling coverage is, add an additional 50% of “just in case” coverage. This is important for major events where all your neighbors are also trying to rebuild and the cost is spiking. This also protects you in case you forget to check your policy for a few years.
One more bonus coverage check. It is rare, but some companies are providing Guaranteed Replacement Cost coverage. If you are with a carrier that offers that, take it. This means that as long as your Dwelling coverage meets or exceeds the Reconstruction Cost estimate, they guarantee that they will pay to rebuild.
In order for Extended or Guaranteed Replacement coverage to be triggered you need to have Dwelling coverage at or above your Reconstruction Cost estimate with that company, so make sure to keep that up to date.