Home Insurance: Do You Have Enough to Rebuild Your House?

Cash Value Vs. Replacement Cost and Other Concerns

With construction costs for lumber, materials, and labor continuing to rise, are you sure you have enough insurance to rebuild your home? Add to that Colorado’s susceptibility for wildfires, and keeping up with insurance protection becomes even more important for homeowners who live in designated risk areas and must meet strict safety standards. 

No matter where you live in Colorado, a lot has changed in a short time, and rising costs may indicate that the insurance you purchased to protect your home even a year ago may require a second look to ensure your coverage is adequate. This means now is the perfect time to review your current coverage with your Colorado Farm Bureau Insurance agent and make adjustments if necessary, giving you the peace of mind that comes with knowing your home is fully protected. 

In the case of your home and possessions being damaged or destroyed, there are two options insurers generally use to assess your home’s value and compensate for your losses. 

Assessing Your Home’s Value: Cash Value

The first is actual cash value, which is equal to the replacement cost minus depreciation. It represents the dollar amount you could expect to receive if you sold your home or possessions in the marketplace. Insurance companies determine the depreciation based on objective criteria (taking the age and category of the property into consideration) and a subjective assessment (made by the insurance adjuster’s visual observations). 

Assessing Your Home’s Value: Replacement Cost

The other likely option is called replacement cost, a better choice for the homeowner because it will cover the cost to repair or rebuild your house using similar materials of the same quality and value as your original home. This takes into consideration construction costs, square footage, the quality of materials, home features and labor. 

Replacement cost is dependent on your home’s value, which is determined, among other things, by its location, building materials, condition, size, age, nearby property values and home sales to evaluate your home’s value. It’s important to understand that your home’s replacement cost is not the same as its market value, which includes the value of the land plus any improvements made to the home or the land. 

Wildfire Risk

If you do live in a wildfire risk area, having the right insurance protection is even more imperative. Colorado’s forest areas have grown hotter and drier in the past few decades, increasing the odds of more wildfires. The good news is that local, state and national organizations have joined together to help homeowners mitigate the possibilities of home damage or destruction from wildfires. 

A great example of these efforts is Boulder County’s Wildfire Partners, a nationally recognized model for wildfire mitigation that is incorporated into Boulder County’s building code. Funded by a $1.2 million grant from the Federal Emergency Management Agency (FEMA) and Boulder County government, the program includes more than 2,500 homeowners in the county.

Their aim is to put programs in place that can create safer surroundings for your home and property, such as removing leaves and debris from decks, roofs and gutters, using tempered glass for windows, replacing combustible fencing or gates near your home and many more tips. 

Find many more ideas on how to mitigate fire destruction by visiting this Colorado State Forest Service site.

Speak With an Insurance Expert at Farm Bureau Insurance 

Farm Bureau Insurance is a member of the Rocky Mountain Insurance Information Association—an organization dedicated to helping Coloradans better understand the threat of wildfires and properly prepare for them. Visit the RMIIA website to learn more about wildfire readiness, including being adequately insured, mitigation strategies, and evacuation planning.

Touching base with your Colorado Farm Bureau agent at least once a year is an important element in keeping your coverage up-to-date, and in a time of rising costs, it makes more sense than ever to review your insurance plan. Call your agent today, or find one locally by using our Agent Finder.