Question: I am devastated when I watch fires consuming Colorado’s forests and people’s homes. How can families afford to rebuild their homes?
Answer: It may seem that, when you write your check for your homeowner’s insurance each year, you are sending money into a dark hole. Although you may be one of the lucky ones who has never had to file a claim, the horrifying fires destroying people’s homes and everything in them show how quickly a disaster can occur and how important it is to have insurance protection when you need it.
When you buy homeowner’s insurance, you are pooling a small amount of your money with millions of other people to cover costs of partial or total destruction of your home. This insurance will pay for a number of things, including rebuilding your home, replacing furniture and personal possessions and covering living expenses if you have to live elsewhere while your home is being rebuilt.
It is recommended that you buy a replacement-cost policy. You estimate how much you need by multiplying the total square footage of your home by how much it would cost locally to build a new home. Don’t include the cost of the land. Some people include an inflation-guard feature in their policies that will automatically adjust your coverage when you renew your policy each year. Every year, before automatically paying your insurance premium, you should reevaluate the amount of coverage you have, especially if you’ve made improvements to your home.
In November 2001, the Colorado Division of Insurance conducted an annual comparison of premiums for homeowner’s insurance, renter’s insurance, and condominium owner’s insurance. The premium for insuring a $200,000 frame home (land not included) with a $250 deductible in Fort Collins ranged from $566 to $1,204 per year. Comparisons are also made for Denver, Pueblo and Grand Junction. The range for a frame condo in Fort Collins was $105 to $362 per year. You can find this study at www.dora.state.co.us/insurance.
Although the federal government will often help families struck by disasters such as flood and fire, the aid often comes in the form of low-cost loans. You will be in much better financial shape if you have prepaid your rebuilding costs by purchasing adequate homeowner’s insurance.