Evaluating Your Homeowners Coverage

Recent events here in Boulder have thrown into sharp relief the possibility that many of us are underinsured for repairing or rebuilding our homes should they be damaged or destroyed by fire, accidents, or weather.  Your various coverage amounts for your home should be reviewed annually when your policy renews and possibly even mid-year if you make updates and major changes to your home.

To review your policy’s coverage amounts you can either sign in to your insurance company’s website or, if you have a paper copy of your insurance policy, turn to the Declarations page and get started.


The first and probably most important coverage amount listed is your Dwelling coverage.  This amount does not include the land your home is built on but only the cost of rebuilding your house which currently can be higher than the market value of your home.  It is estimated that many homes, possibly a majority, are underinsured for rebuilding costs sometimes by hundreds of thousands of dollars.  Shortages caused by recent supply chain problems and the recent jump in inflation have only exacerbated the problem, further raising the cost of rebuilding.  Adding to the total is the cost of removal of toxic debris from the property along with trees, retaining walls, etc. that are damaged beyond repair.

There are many factors that affect the amount of dwelling coverage needed.  Location, size, the age of your house, and the types of finishes in your home all make a difference, and estimates have a wide range often up to $500 per square foot or more to rebuild.  To find your coverage per square foot divide your dwelling coverage by the square footage of your house.

Another variable in dwelling coverage is the type of policy you have.  If your policy is actual cash value (ACV) then you are only covered for the value of your home minus depreciation.  Since elements of your house such as the roof, plumbing, or kitchen cabinets have aged they are considered to have depreciated.  ACV, while offering the least expensive premiums, usually won’t cover the cost to rebuild your house with new materials.

If your policy is replacement cost value (RCV) you are covered for the cost to rebuild your home at current prices for labor and materials.  Guaranteed Replacement Cost (GRC) and Extended Replacement Cost (ERC) coverage will cover the cost to rebuild your home as does RCV with an additional percentage beyond your policy limits if needed to rebuild your home.  If your home is older, you might also consider adding an Ordinance or Law rider to your policy.  This covers additional costs of rebuilding related to bringing your home up to current building codes.

The most exact method of determining how much dwelling coverage you need is to have a professional appraisal done.  An appraiser can research local rates for materials and labor and provide a detailed report, but this can also cost several hundred dollars.  If you have access to a local home construction company or experienced real estate professional, they may also be able to give you an estimate on the price per square foot to replace your home at current market rates.  A conversation with an experienced and trusted insurance agent can also yield a good estimate.

Other Structures

This coverage is generally 10% of your dwelling coverage and covers structures on your property that are clearly separated from your dwelling such as detached garages, storage sheds, fences, gazebos, and the driveway.

Personal Property

This coverage covers the property in your home such as furniture, clothing, sporting goods, and electronics.  As with dwelling insurance, you can purchase coverage either for replacement cost or actual cash value which takes into account depreciation.  While actual cash value is less expensive it will also not fully cover the replacement of your belongings.

Personal property coverage is usually between 20% and 50% of the dwelling coverage – a wide range.  How much is enough?  A home inventory, a list of all your belonging with associated values, is the best way to estimate this.  Photographs and videos can be helpful in the event you need to make a claim.  If you have high-end items such as artwork or antiques, these should be insured separately with a separate endorsement or rider on your policy.

Loss of Use

If your home is damaged to a point that you are unable to live there, this coverage helps with the costs of temporarily relocating – hotel stays, additional fuel costs, and other essential expenses while you are away from home.  The coverage will last as long as you are away from your home or up to your policy limits, whichever is shorter.

Personal Liability

Personal liability protects you if someone is injured on or by your property and you are held legally responsible.  From $300,000 to $500,000 is generally recommended on your homeowner’s policy with additional coverage being provided by a separate umbrella policy.

Medical Payments

This coverage helps with minor injuries that happen on your property.  It does not include members of your own household and it is generally a small amount such as $1,000.  This can cover or help cover ER visits, hospital stays, physical therapy, ambulance rides, and the like.

The increase in wildfires, hurricanes, and other types of extreme weather in recent years have spotlighted how important it is to have adequate homeowner’s insurance.  Now is an excellent time to take stock and review this important coverage.

~by Carolyn Ellis Rice