If you’re like most homeowners, the past few years have been cause for celebration.
Home prices in Denver and elsewhere in Colorado have climbed steadily, even dramatically in some areas, and equity gains have been so strong that people are leveraging their real estate to remodel their homes or even buy a place in the mountains.
There is a downside to the trend, of course. Higher prices mean tight supply, bidding wars and higher mortgages.
For those already in their homes, it also raises a big risk: the distinct probability that the limits on their homeowner’s policy are below the cost to replace their residence.
This is, in fact, a big problem. The nation’s leading construction cost data provider estimates that two-thirds of U.S. homes are underinsured. To put it another way, two out of every three American homeowners are at risk of financial disaster in the event of a catastrophe.
According to real estate data providers, the median price for a Denver home rose 9.6 percent in 2016 vs. 2015, while the Colorado Springs region recorded a 6.3 percent jump and Boulder County saw a 12 percent increase.
It’s a common mistake but your home, in fact, isn’t insured at its market value. An insurance company is never going to sell your home, just rebuild it. That’s why a policy will cover only the replacement cost of the residence. And that’s why an extra bathroom, bigger kitchen or any remodeling project that adds value to your home should trigger a policy review.
Homeowner’s insurance, of course, protects your home, its contents, and, indirectly, your other assets in the event of fires, theft, accidents or other disasters.
Your policy should cover enough to entirely rebuild and furnish your home were it wiped off the map. In calculating this, insurers don’t factor in the cost of the land.
Unless you’ve bought a policy with an inflation guard – which increases your home’s coverage limit by a certain percentage each year – there are a few ways to tackle the question of whether your policy needs adjustment.
For the fast and easy way, do a bit of rough math. Just multiply the square footage of your home by local building costs per square foot. You can call a real estate brokerage in your area for that building cost figure. Once you’ve done the math, compare your figure with your policy’s Coverage A limit. The two figures should be as close as possible so that you can rebuild without having to pay much more than your deductible.
Another option is to call a professional appraiser, which will cost a couple hundred dollars.
The best route would be to call your insurance agent to calculate the replacement cost, which should be available at no charge.
A few other things to keep in mind:
Matt Genova is the Personal Lines manager at CCIG. Reach him at MattG@thinkccig.com or 720-330-7936.Back to Resources