Are You Underinsured?

“It’s gone. Our house is gone.”

I could hear the sadness and despair in their voice. My heart went out to my friends who lost their home in a recent wildfire. What could be more gut wrenching than losing your home, your personal belongings? It’s the worst kind of heartache.

But many homeowners who’ve lost their home confront another rude awakening once they navigate the insurance process. Replacing all their belongings and rebuilding their home will cost far more than the insurance claim pays out. In California, a 2018 report of wildfire victims showed up to 80% of homeowners being underinsured, with 60% being severely underinsured. Current estimates for mountain residents of Boulder County are that 60% are underinsured.

Why does this happen and what can you do about it?

Your homeowner’s insurance breaks down to covering the cost of your home and your accessory structures, but also what’s inside your home. Getting an accurate estimate of these costs are two separate issues.

Contents/Home Inventory. Your personal belongings can be assessed accurately by doing a home inventory regularly. A home inventory should include a list of items by room as well as photos and videos. Winter is a great time to do a home inventory when the snow is falling and you’ve got cabin fever. If you feel overwhelmed and don’t know where to start, there are several apps that can lead you through the process room by room. Most of these apps will then save your inventory to the cloud where it can be accessed from any computer. This is important because if a fire breaks out and you’re aren’t able to return to your home, you’ll still have access to your home inventory.

You can extend the limits on your existing policy or purchase a separate insurance policy to cover high value items such as jewelry, collections, fine art and other items. Talk to your insurance agent to find out the details.

While you’re at it, consider opening a safe deposit box in Boulder or on the plains somewhere. Keep copies of your important documents — birth certificates, social security cards, passports — in the box. Do you have a fire safe that you think will keep your documents safe? Think again. Many fire safes are not built to withstand the extreme fire and heat of a wildfire. “I thought our documents were secure because we had fire safe. But when I went through the remains of the house, there were destroyed anyway” shared a woman who lost her home in the Calwood Fire last fall.

Other items to consider putting in a safe deposit box would be spare car keys or other important keys. Ask yourself what items are critical and make sure you either have them with you or keep them safe in a safe deposit box. My friend who lost his home in Cold Springs found out his vehicle had been spared, but the keys were lost in the home that burned down.

Dwelling/Rebuilding Costs. This is where most people find they don’t have enough insurance. Often, the estimating software insurance companies use do not accurately reflect the cost of rebuilding in Boulder County. Common mistakes include using the appraisal value or the current selling price for their home. Homeowners frequently price the cost of materials for the exact home they had. In all likelihood, the home you rebuild will be vastly different. You will need to rebuild in accordance with current building codes required by Boulder County. This could include items like ignition resistant roofing, indoor sprinklers, noncombustible siding, green building code — all things that will raise the costs of rebuilding. Upgrades to meet current building codes could add 25% or more to the cost. Before your insurance renews, consider consulting with a local builder and asking their cost per square foot to build and multiplying it by your proposed size of home. And remember following a large disaster like a wildfire, building costs escalate significantly because of the demand on supplies.

To determine if you are properly insured look at your policy under Coverage A. Divide that number by the square footage of your living space (minus your garage). For example, $600,000 in coverage/2,000 square feet =  $300. This number will be how much money you will have per square foot to rebuild. Current building costs for Boulder County estimate the minimum to be $350-400/square foot. This figure will be much higher for custom or larger homes.

Do you have a detached garage or studio? Don’t forget to include these structures in the cost of rebuilding those structures as well, with current building code requirements in mind. If you build an addition or detached structure later, remember to update your coverage at the time it is finished.

Living Expenses. You’ll need coverage to pay for your expenses like rent and utilities while you are rebuilding your home. It’s recommended to have at least 24 months of additional living expenses as part of your insurance coverage.

In past fires, some have found it was easier to buy a new home elsewhere than rebuild. But you may not be able to use your insurance claim money to buy another home. Check with your insurance agent to find out what your coverage allows. This year during the pandemic, many found real estate prices in the local area to be so high, that buying another home cost more than rebuilding their own. On your own property, you do have the option to build a smaller home to help defray costs.

If your research shows you are under insured, contact your agent immediately and request an increase in your coverage. If they refuse and say you are adequately insured, ask them to put that in writing.

The topic of insurance can seem overwhelming but know there is lots of help out there. The Rocky Mountain Insurance Information Association is a great resource here in Colorado. Uphelp.org also provides the steps needed after recovery from a wildfire, including this helpful information for wildfire victims of the 2020 Colorado wildfires.

Getting certified through Wildfire Partners can help prevent from your home from being destroyed in a wildfire. But there are no guarantees. Taking steps now to address shortfalls in your current policy will give you peace of mind for the future, knowing that whatever happens, you’re prepared to deal with it.

 

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