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Burned by Your Homeowners Insurance

            Many of you may have already forgotten about the terrible Marshall Fire on December 30, 2021 in Boulder, Colorado.  This blaze devoured a huge area and destroyed over 1,000 homes, causing more than $1 billion in damage.  The dreams of owning a home for many were literally turned to ashes in one day.  In the aftermath of a fire, whether it’s a single-family home or a large fire that destroys subdivisions, you are left with insurance adjustors, displaced families, lost businesses, and residences and personal property damaged or gone up in smoke. 

            Some studies indicate that over 70% of homeowners are underinsured.  This means a homeowner would have to pay the difference to rebuild their home and replace their belongings to offset the insurance coverage shortfall.  You must remember that insurance policies are contracts, and contracts have limits as to how much they will pay out. 

            Accordingly, conduct annual reviews with your independent insurance agent to make sure your dwelling and other coverages are sufficient to rebuild, particularly in this current economic situation with inflation, the high cost of building materials, and soaring property values.  Here are some things to look at with your agent:

  1. Check to see what types of riders and addendums are available regarding guaranteed replacement cost and coverage for other things such as outbuildings, fences, walkways, and even shrubbery.
  2. Know what your deductibles are on your policy and how those deductibles are calculated.  There are many new policies being written, particularly in storm-prone areas, in which the deductible is a percentage of the then market value of the home.  If you bought a $300,000 house five years ago, and it is now an $800,000 house, a 1% deductible of $800,000 is $8,000.  If you sustain a $10,000 roof claim, you are going to be paying $8,000 of the cost and the insurance company is only going to pay $2,000.  Be careful in those situations.  If you have a major loss, you would be wise to use the services of an independent, third-party adjusting service.
  3. Verify the level of coverage you have for loss of use and lost rent coverage in order to pay living expenses while you are out of the home during time to rebuild or repair the property.
  4. Make sure your policy includes sewer and water backup coverage.
  5. In addition to having a homeowner’s policy, add to it liability insurance umbrella coverage for asset protection purposes.  I’ve written about this in the past.
  6. Maintain a good photo or video inventory of your personal belongings with a narrative during the video to document the personal property you could need to replace in the event of water, smoke or fire damage or loss.

            You’ve probably seen TV commercials trying to sell you cheap insurance coverage for your expensive properties.  Please do not do that!  Insurance companies are not “neighbors”, they are not “on your side”, and they are not people with “good hands”.  Your property is worth properly protecting.  Stripped-down, cheap premiums are a reflection of marketing efforts to capture customers without making those homeowners aware of the costs they will have to absorb if a loss occurs.  Being underinsured will hurt you, not the insurance company.

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