Dwelling insurance premiums are more likely to rise attributable to rising materials prices and adjustments in worth – Colorado Springs Impartial
The real estate market in Colorado Springs is crazy. Home prices are 20 percent higher than a year ago. Some even higher.
For example, a home in northeast Colorado Springs that sold for $ 238,000 three years ago recently received a bid of $ 410,000 – nearly 10 percent above the asking price of $ 375,000.
So real estate owners could reasonably wonder whether their home insurance would adequately cover a loss in a market that has driven their property values high.
The answer to this question is yes and no.
Another reported issue has occurred for those buying homes in Wildland Urban Interface areas – almost all of the west side of Colorado Springs is considered a WUI. Due to the extreme risk of fire, compounded by drought and high temperatures, some insurers are reportedly reluctant to cover these structures, although coverage is available if homeowners are willing to pay up to 25 percent more.
But one thing is certain: whether your property is adequately insured is not the case after it burns down.
"Some people find that they are not properly insured in the event of a claim," says Heather Mellinger, owner of Springs Insurance Brokers.
Few people appreciate the drastic changes in house prices like El Paso County Assessor Steve Schleiker.
His recently completed real estate tax revaluation reviewed sales between July 1, 2018 and June 30, 2020. Values rose up to 30 percent during this period, depending on the property's classification, and took another leap over the past year.
When asked whether rising property values should trigger a reassessment of insurance coverage, Schleiker said by email: “Every property owner must be aware of that. The question that many ask is, "Should you increase your home insurance if your property goes up?"
Not necessarily, he says.
"An increase in market value in and of itself does not necessarily require an increase in home insurance," he says. This is because the home insurance is based on the estimated cost of repairing or replacing the structure in the event that it is damaged or destroyed.
As the cost of some building materials has also increased, it is possible that some policies do not cover all replacement costs. “There can be consequences if you don't check your policy to make sure you have the correct valuation coverage,” Schleiker says, noting that some homeowners who lost their home in the Waldo Canyon Fire 2012 were not adequately covered to cover the entire bill in the event of a reconstruction.
Vincent Plymell, assistant insurance commissioner for Colorado, echoed Schleiker, saying skyrocketing sales prices are based on the market value of the houses, which is different from the replacement cost.
"Some people find that they are not properly insured when damage occurs."
– Heather Nellinger
"Just because a home's market value has increased 30 percent doesn't mean the cost of repairs or replacements has increased by the same amount," Plymell said in an email.
But like Schleiker, Plymell advises homeowners to do their research.
"Homeowners should speak to their insurance agent (their agent / broker or the company) every time they renew their contract to ensure that coverage is up-to-date based on current construction costs," he says. "Most insurance companies update their replacement cost estimates regularly and should take these costs into account."
He also advises policyholders to report changes to the property, such as conversions or additions, so that the policy truly reflects the insured property.
In addition, he suggests purchasing "Extended Replacement Costs" coverage – to cover additional, unforeseen rebuilding costs that you would otherwise have to pay out of pocket – that would arise in the event of a total write-off.
Mellinger, of Springs Insurance Brokers, backed Plymell's application for expanded coverage, saying such policies can represent up to 100 percent of the insured value of the home.
"You won't find houses that are burned to the ground and not insured if the policy is spelled correctly," she says on the phone.
She also says it's important to report changes to the property so that the policy truly reflects the value of the property's replacement cost. And she says that inflation also plays a role, which she sets at 3 to 5 percent per year. “I wouldn't let a policy sit idle for more than three years without reviewing it,” she says.
Local insurance agent James Whitlock agrees. He suggests contacting your agent 30 to 35 days prior to the renewal of the coverage. “This is the crucial time when things can be viewed before the renewal,” he says.
Real estate insurance premiums are being driven by rising costs not just for lumber but also for paint, drywall and shingles, he says.
“Every time we see material increases, insurance costs will also go up because we have to take that into account if something should happen (a loss),” he says.
If there is a mortgage on the property, an increase in the insurance premium will show up as part of a higher mortgage payment (the insurance premiums will be held in trust and paid to the company), as will higher taxes due to rising values.
"The key to keep in mind about insurance is that we try to insure you for what it would take to rebuild your home from scratch, not necessarily its value," notes Whitlock.
When you buy a house close In wooded areas where forest fires could be a threat, be prepared to buy some insurance.
According to Plymell, the insurance division has not seen any problems with the availability of insurance with the 80 homeowner insurers in Colorado, but that doesn't mean all companies buy high-risk property policies.
Homeowners may need to consult a broker to find a freight forwarder willing to insure a home near the forest and at a higher risk of forest fire.
Some freight forwarders simply don't insure structures in certain postal codes, says Mellinger, but adds: “As a broker, I can find a policy for everyone. If you get rejected by a standard vendor like State Farm, Farmers, or for a home in Crystal Park, you go to a surplus and surplus market. ”
These insurers charge more, but write such policies. Mellinger says there are some places in Colorado where it's nearly impossible to get insurance, such as a log cabin in a remote wooded area over difficult terrain and miles from a fire department.
Plymell advises that companies cannot cancel a policyholder in the middle of the policy, except in very specific circumstances, such as: B. Fraud, but they can choose not to renew a customer and that happens.
He also says companies need to justify their premiums. “You can't just make up numbers,” he says. However, he adds that the prevalence of forest fires and hail in recent years has justified insurers' premium claims. In fact, some companies are allowed to ask for more than they do.
Finally, consumers are encouraged to contact the Insurance Commissioner's office at 303-894-7490 or DORA_Insurance@state.co.us with any questions or complaints.