Do You Have Adequate Insurance?

Is your homeowner’s insurance policy up-to-date and do you have the correct coverage? Home values and construction costs have been rising much faster than both predicted and actual inflation. It is a good idea to periodically (annually) review your homeowner’s insurance to make sure you have adequate coverage. Most importantly, you need to find out what your insurance doesn’t cover.

In 2018, Colorado was the state with the highest number of hail-related claims and typically it’s in the top 5 states for this category.

Here are some things to consider:

  • Do you have enough coverage?
    • Replacement cost—Ask your insurer for an updated estimate on the rebuild cost of your building
    • Contents coverage—Typical policies will have both a max coverage limit for personal items, and a per-item max coverage
      • Specialty Items (jewelry, collectible artwork, high end electronics, etc.) can easily exceed the per-item max coverage
    • Roof coverage—Ask whether this is covered for replacement cost or actual cash value?
      • Here is a hypothetical example on a 10-yr-old roof
  • Scenario 1: Actual Cash Value (ACV)
    • Deductible $1,000
    • Cost of Repairs $15,000
    • Depreciation Schedule $1,000/year
    • Insurance Payment = $15,000 – $10,000 – $1,000 = $4,000 to offset roof repair or replacement
  • Scenario 2: Replacement Cost (RCV)
    • Deductible $1,000
    • Cost of Repairs $15,000
    • Depreciation schedule N/A
    • Insurance Payment = $15,000 – $1,000 = $14,000

With the ACV policy they will need to come up with $11,000 and if they don’t do the repairs the insurance company will not cover them since the roof is such an important part of protecting the structure of the home. With the RCV policy, the owner will only need to come up with $1,000.

  • Sewer Backup Rider—This rider would provide coverage for damage to the property caused by the sewer line backing up.
  • Flood Insurance Rider—Exterior water intrusion is not usually covered in a standard policy. Your insurance provider can sell you “Flood” Insurance which is provided by FEMA. Flood Insurance may be required if you have a loan and your property is in a flood plain. If your property is not in a flood plain this type of insurance is very inexpensive to obtain.
  • Personal Property (Renters) Insurance—Renters insurance covers liability and your personal property very inexpensively (as low as $15 per month). Check with your current auto insurer to see if they offer renter’s insurance.
  • Vacant, Rental, Short-Term Rental and/or Renovation in Progress
    • Typically, policies don’t cover these scenarios in most cases.
    • Discuss with your agent writing a policy with adequate coverage for these situations which will cost slightly more than the average homeowner policy.
  • HO6 (Condominium) Policy
    • Make sure your coverage matches (meets) where your HOA policies coverage stops, i.e. at the studs, drywall, etc.
    • If your home is part of a Homeowner’s Association, you may want to purchase a rider which could help offset the cost of special assessment to your unit.

Here is a hypothetical example involving a condominium:

The HOA insurance policy has $100,000 deductible. If the buildings get hit by hail resulting in a large claim to the HOA insurance provider, because of the size of the deductible, the association must impose a special assessment against all owners.  There are 25 units which would result in a special assessment of $4,000 due to the HOA by each unit owner.

In this scenario, the unit owner would be responsible for paying the HOA this amount OR if they had Loss Assessment Coverage they would file a claim with their insurer and their insurer may pay a portion of the special assessment (subject to their individual deductible and policy).

  • Additional Umbrella Insurance
    • An Umbrella Policy is an additional insurance policy which would cover an individual or family, as well as their assets (must be named on policy and restrictions apply). It is helpful when the insurance owner is sued and the dollar limit of the original policy has been exhausted. The added coverage provided by liability insurance is most useful to individuals who own a lot of assets or very expensive assets. This is a very economical way to reduce risk.
    • For example, if someone owned their primary home, rental property, 2 cars and a boat all of which had standard insurance on them (most of those would have $100,000 to $350,000 in liability coverage) this person could purchase an umbrella policy for $1,000,000 in additional liability coverage for a low price of around $350 a year.
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