Homeowners insurance and what you need to know to be sure you’re not underinsured

DENVER – The Marshall Fire was a wakeup call for Coloradans to check their own…

DENVER – The Marshall Fire was a wakeup call for Coloradans to check their own insurance policies and what they cover, as many homeowners are now realizing they were underinsured as they decide whether to rebuild their homes or move on.

If you haven’t looked at your policy in more than a year, think about calling your insurance agent.

The Rocky Mountain Insurance Information Association offered some tips for people concerned with their insurance levels.

First, avoid insurance minimums, which help save money each month. But the home itself is the largest investment and paying more monthly could save homeowners from a costly headache in the long run.

MORE: ‘There should have been a fail-safe’: Marshall fire victims say they are massively underinsured

The association advises people call their insurer if they do any home renovations or upgrades which add value to the home, because an increase in coverage might be necessary to cover the upgrades and new value.

Be wary of coverage for actual cash value, which is separate and different from a replacement policy. Those types of policies will only pay out for the current state of the home and deducts value based on depreciation.

“What you can sell it for with our market right now in Colorado could be a huge amount more than you could sell it for than what you bought it for,” said Carole Walker, the executive director of the Rocky Mountain Insurance Information Association. “What your insurance cares about is the cost to repair and rebuild your home in today’s dollars. Those are those rebuilding costs, not what you can sell your home for.”

In other words, if your home is 25 years old, the insurance plan will only pay you what the 25-year-old home is worth damaged or destroyed – not what it would cost to replace the entire structure.

And finally, people should calculate the replacement value of their home, which is typically the building costs per square foot. It could be higher now than in years past, as the cost of lumber climbed significantly in 2021 and remains “volatile,” according to Home Depot, a large lumber supplier.

The National Association of Home Builders estimates that could add up to $20,000 to a home build.

The Colorado Division of Insurance also has a host of information about insurance and resources for homeowners, including those who lost their homes in the Marshal Fire.