LOUISVILLE, Colo. — The stories of loss are heartbreaking.
“It’s awful, but you survive awful things,” said Joseph Reid, who lost his home in the Marshall Fire.
Reid believes his home was severely underinsured.
“No one should have ever written such a badly underfunded policy,” Reid said.
Because of his concerns and others, we’re taking a deeper look at this issue by answering four major insurance questions arising after the catastrophic Marshall Fire.
How do you know if your homeowner’s policy provides adequate coverage?
The best line of defense is to call your agent to make sure you have adequate coverage.
“We all need to be checking in with our insurance professionals on at least an annual basis,” said Carole Walker, executive director of the Rocky Mountain Insurance Association. “How much do I have?”
Experts like Walker say the Marshall Fire is a wake-up call to all homeowners and renters.
“Those days of saying, ‘I’m procrastinating my insurance. I’m procrastinating doing a home inventory of my stuff or talking to my insurance agent on an annual basis,’ Those days really need to be gone,” Walker said. “Because as we’ve seen, the unthinkable can happen in a moment’s notice.”
Don’t confuse your home’s market value with replacement costs.
Replacement costs can be lower or higher than market value, depending on where you live and what construction costs are like in your state. They tend to be lower in Colorado than market value.
“What the insurance company cares about is not the market value or what you could sell your home for, which we know in Colorado is a lot these days,” Walker said. “Rather, they care about the cost to repair and rebuild in today’s dollars.”
Most insurance companies write a policy based on replacement costs, plus 20% or so for inflation.
Walker says insurance companies also realize construction costs are going up.
“There’s a shortage of contractors, shortage of supplies like lumber and paint,” Walker said. “That will likely inflate costs and take longer to do the work because of delays we’re seeing in this new normal.”
Update your policy based on upgrades.
Any improvements to your home add value. Experts suggest updating your policy based on upgrades to your home, even if that means your premiums rise a little.
“It’s not that much more out of pocket,” Walker said. “Don’t cut corners on that. That is going to make all the difference to you in this recovery.”
Walker says home improvements or additions you’ve done often add value.
“During COVID, you tricked out the deck. Those are all things that are going to be more expensive to replace and rebuild,” Walker said. “If you put in new tile and you’re thinking, ‘Hey, it would cost me much more to replace this special tile that I got from Italy,’ that’s when you need to make a call to your agent.”
FEMA coverage can help to fill some gaps, even though insurance should be your primary recovery mechanism.
“Go ahead and register for FEMA because that can cover deductibles, underinsurance,” Walker said. “If you do find that you’re underinsured or you don’t have insurance, even if you’re a renter, that’s where the FEMA money kicks in.”
Finally, Walker suggests patience in the process.
Sometimes insurance companies pay the depreciated value of your items now, then cut you another check for the difference when you go out and purchase items like a new TV or furniture.
“People are always worried that they’re getting a check much lower than they know their stuff is worth,” Walker said. “I know there’s a lot of fear. People are still reeling. We’re only a week out.”
Some companies, like State Farm, allow you to add items to your claim as many as two years after a disaster.
Bottom line, Walker says, as a homeowner, it’s about due diligence.
“If you’re sitting there saying, ‘I don’t even think about my insurance until I have to file a claim,’ that’s not the time to be thinking about your insurance because by then it’s too late,” Walker said. “More than half the population of Colorado lives in high-risk wildfire areas. There’s an enormous amount of risk across Colorado in our urban settings. This is a wake-up call to all of us that we live where we live.”
Walker says insurance agencies are still getting very low uptake on people sitting down with them and reviewing policies periodically.
“You can’t afford not to do that review,” she said. “Think about your insurance as a financial investment, much like you would your 401k.”
“I can only hope that we can get the insurance company to take the broader view,” Reid said. “Take the humanitarian view. There isn’t a chance in hell that [our home] can be rebuilt at that level of coverage.”
