#12 Am I Financially Protected?

#12 Is my coverage high enough to protect me financially?

The market value of your house is not a reliable predictor of the cost to rebuild.  While your home is rebuilt, you will be living elsewhere; be sure both the amount and length of time of this coverage is adequate.  Also be sure your coverage for replacing the contents of your house is adequate and find out what kind of documentation your insurer will need to support your claim. 

More Details: Experience after a wildfire finds that many, if not most, homeowners are underinsured. Experts agree that it’s better to be overinsured than underinsured, and the cost associated with increasing your coverages are usually relatively small and worth exploring with your insurer.  Although Colorado law requires insurers to offer the opportunity to increase your coverage, it is up to you to do so.

You cannot rely on an appraisal or expected sale price to predict the cost to rebuild; your Coverage A Dwelling limit should be as close as possible to the rebuilding cost. United Policyholders provides several ways to calculate this cost. Relying on the insurer’s estimate of replacement cost likely will leave you significantly underinsured. 

Building costs increase, at times over and above inflation; building code changes (like the 2025 Colorado Wildfire Resiliency Code) could also increase the cost to rebuild.  If you have not adjusted your coverage, you could find yourself significantly underinsured. Some insurers sell products where the Coverage A Dwelling limit increases automatically. The Colorado legislature passed a law in 2023 that requires insurers in the state to offer Extended Replacement Cost (ERC) and Law and Ordinance (L&O – for example increases due to changes in the building code) coverages.  Because of this law, you have the ability to purchase increased coverage to account for building code changes and increases in building costs over and above inflation. United Policyholders advises that you buy the biggest replacement ERC you can afford. 

Additional living expenses (ALE), sometimes referred to as “loss of use benefit,” includes a payment for costs incurred that are above your normal living expenses while you are rebuilding.  Be sure these are adequate for your area. Rents are high in Colorado. Policies with a 12-month limit likely underestimate the time it will take to rebuild, and you might want to consider raising this. In 2022, the legislature passed a bill requiring insurers to offer a 24-month ALE with the opportunity to extend the time by 6 months, twice, if delays have increased the time to rebuild.  

Make sure you have enough contents coverage – it’s easy to underestimate. A replacement cost endorsement that increases your dwelling limits may not also increase your contents limits, so check the maximum amount you can receive as stated on your declarations page. 

To avoid headaches when making a claim, it is important to have a written or photo-based home inventory. Without an inventory, Colorado law requires that the insurer pay a minimum of 65% of the limit on contents coverage (which is not the same as the value of your house,) and this only applies in a governor-declared wildfire disaster. You might be able to negotiate more with your insurer. There are many apps that will help you to compile home inventory information. The inventory, as well as current appraisals of valuables, should be stored outside your home. 

Check whether your policy includes reimbursement for debris removal if your home is destroyed in a wildfire.  Although this cost is the responsibility of the homeowner, there may be a coordinated program organized and paid for by a governmental agency (Boulder County coordinated and paid for debris removal after the Marshall Fire).