Colorado Homeowners Insurance

Colorado homeowners insurance is usually mandatory for home buyers with a mortgage. And if you don’t have a mortgage, it’s important that your financial investment in a home is protected from disasters with homeowners insurance.

Today, we’ll cover everything homeowners need to know about Colorado home insurance. We’ll answer your most common questions like:

• What is covered by Colorado homeowners insurance?
• What isn’t covered by a homeowners insurance policy?
• How much home insurance should I buy?
• What is replacement cost vs. actual cash value?
• What is ordinance and law coverage?
• What is liability coverage on a Colorado homeowners insurance policy?
• How much liability do i need on my homeowners policy?
• How to get the best homeowners insurance in Colorado

The most important aspect of your property insurance is the coverages, coverage amounts and valuations. Let’s start there.

What is Covered by a Colorado Homeowners Insurance Policy?

In Colorado, home insurance is built on the notion of fire coverage. The idea is that if a home burns down, the homeowner will be able to rebuild a new home from the ground up. Note that the land itself isn’t insured – it would still be there after a fire – but other structures like garages and sheds do have some coverage.

Perils Covered by Colorado Homeowners Insurance

Colorado homeowners insurance usually doesn’t include flood coverage. That’s flood insurance, and we’ve discussed it here.

But most standard homeowner’s insurance policies in “The Centennial State” will cover damage from:

• Fire
• Wind
• Hail
• Lightning
• Explosions
• Aircraft or vehicle crashes
• Civil unrest or rioting
• Malicious mischief / vandalism
• Broken tree limbs falling on a home
• Some equipment breakdowns that could damage your home or belongings

On your Colorado homeowner’s insurance policy, you can read your list of covered perils.

What Isn’t Covered by a Colorado Home Insurance Policy?

Floods, earthquakes and landslide damage aren’t usually covered by homeowners insurance. That’s because these catastrophic events affect hundreds of homes at once. So an insurance company would be forced out of business if they had to cover these losses, and many homeowners would be left unpaid.

Every insurer has a slightly different package, but they’ll usually have specific limits on other expensive items too. That means you may need to buy extra coverage for:

• Expensive artwork
• Fine jewelry
• Musical instruments or recording equipment
• A garage full of expensive tools

If you own a $40,000 painting or a $20,000 diamond ring, be sure to tell your insurer. They’ll “schedule” these items on your policy, and your homeowner’s insurance premium will be a little higher.

Now that we know what’s covered, let’s think about valuations.

Property Valuations: “How much insurance should I buy?”

Remember that your Colorado home insurance is designed to protect your investment in a home if it burns down. In the world of home insurance, we call this notion “indemnity” – to make someone whole after a loss.

If your home burns down, you’ll need to build a new one at the same spot to be whole again. We cannot build old homes. And, in a perfect world, you’ll have enough coverage to replace all your belongings.

For now, know that licensed insurance agents in Colorado will use a formula (price per square foot) to help you determine how much insurance you need to buy. This formula is always changing based on things like:

• Labor costs
• Material costs
• Claims made in the area, and known costs to rebuild

The math is always changing. But for the sake of this article, let’s imagine the current cost per square foot in your part of Colorado is $150. If you have 1,000 square feet of living space, then an agent would use the formula ($150 x 1,000) to help you buy $150,000 of insurance coverage.

Keep that $150,000 in mind. We’ll refer to it again as we delve deeper into Colorado homeowners insurance.

The next concept that’s important for first-time insurance customers is Actual Cash Value vs. Replacement Cost.

Replacement Cost (RC) vs. Actual Cash Value (ACV)

To understand your Colorado homeowner’s insurance policy, you need to understand deprecation. Some parts of your home – like your roof, carpet and toilet – lose value over time.  The same can be said for your belongings. You might pay $5,000 for a new living room furniture set, but once your furniture is a year old, it’s not worth $5,000 anymore.

Replacement Cost homeowners’ insurance policies do not consider depreciation. In other words, if your home burns down, the claims adjuster will cut checks to build a brand-new home and buy new belongings.

Or, if your home is burglarized and your TV and all electronics are stolen, this type of homeowners insurance will pay for a brand-new TV equal to your stolen one (after a deductible is paid.)

Most – but not all – Colorado home insurance policies are written with Replacement Cost coverage. Again, the idea is that one can rebuild a home after it burns down and replace most of the contents with new things.

Actual Cash Value policies count depreciation. If your Colorado homeowner’s insurance policy is written on an ACV basis, a claims adjuster will only write you a check to cover depreciated items.

• If your home burns down, you’ll receive enough money to replace your belongings with used items.
• And if you have not replaced your roof or plumbing recently, the claims adjuster might count those as depreciated items, lowering the amount of your claim payment.

When shopping for Colorado homeowners insurance, remember that RC coverage costs more. But it’s worth it! RC pays more for a covered claim.

Read more: Actual Cash Value Vs. Replacement Cost

Let’s examine one more concept related to replacement costs: Extended Replacement Cost.

Extended Replacement Cost Coverage (ERC) on a Colorado Homeowners Insurance Policy

The best – and most expensive – coverage on a Colorado homeowners insurance policy is Extended Replacement Cost (ERC). Not only will this type of policy pay for a new home with brand-new belongings, but it also provides an extra allowance beyond the policy limits.

• Every Colorado homeowner’s insurance company offers a slightly different package, but you can get an extra 10% or 25% of coverage with this sort of policy.

Remember the $150,000 policy we discussed earlier?

• If you add 25% extended replacement cost coverage to that policy, you could spend $182,500 to rebuild your home if it burns down.
• And if you were burglarized, you’d be able to buy a more expensive TV.

ERC is not necessary for everyone. Perhaps you own several furnished homes or would prefer to move rather than rebuild after a catastrophe. In that case, ERC is an extra cost that you don‘t need.

Read more: Extended Replacement Cost – Do You Need It?

So far, we’ve addressed covered perils, home valuations and types of homeowner’s insurance policies in Colorado. Now it’s time to think about coverages beyond dwelling replacement. We’re going to introduce you to concepts like ordinance and law coverage and debris removal.

What is Ordinance and Law Coverage?

Ordinance and law coverage provides additional funds – usually 10% of the home value – that can be used to make a home code compliant after a covered loss.

We won’t get too technical with building codes today. Just know that any new construction in Colorado must adhere to building codes, which are updated on occasion. Additionally, your CO county and your city might have more specific construction regulations, too.

Your local building codes might affect:

• Sewer, water and septic tie-ins
• Porch railing measurements and steps
• Hot water heater enclosures
• Slabs and foundations
• Well housings
• Building materials – like asbestos, for instance, which was popular in the 1970s, but now forbidden
• And environmental code upgrades – like solar arrays on new residential homes, which aren’t required in Colorado at the time of writing, but they’re coming.

Now, an older home might be “grandfathered in,” meaning that recent codes do not apply. But if that old house burns down, the new one must be code compliant.

Even a brand-new house might need expensive upgrades to be compliant as codes change in the future. If Colorado passes a solar mandate like California, that means it might cost another $15,000 just to add the required solar array to your new home.

So ordinance and law coverage is not something we think about until we need it. And Colorado homeowners will need it often in the future.

Another under-appreciated coverage on your Colorado homeowner’s insurance policy is debris removal.

What is Debris Removal on a Colorado Home Insurance Policy?

Imagine a total loss – a home that burns down. Most people imagine a delicate pile of smoking ash. But in truth, house fires leave a huge pile of hazardous material that smells awful!

Debris removal coverage is an additional allowance – usually 5% to 10% of a home valuation – that Colorado homeowners can spend on proper debris removal after a covered loss.

Thinking about our $150,000 valuation again, that’s anywhere from $7,500 to $15,000 you can use to hire contractors to come in with bulldozers and trucks to remove that foul and dangerous debris. Again, it’s not a coverage we like to think about, until we need it.

Now it’s time to switch gears. We’ve explained all the nuts and bolts of Colorado homeowners insurance relating to structure damage and rebuilding homes. But home insurance offers another essential protection: liability.

The Liability Portion of Your Colorado Home Insurance Policy

“Liability” refers to responsibility. As a new homeowner, insurance companies want you to be responsible and maintain your property. That means you must limit risks to others and behave in a reasonable manner.

You should take steps to keep visitors to your property safe, like:

• Put a fence around a swimming pool
• Maintain the exterior of your home
• Prune tree branches
• Fix broken windows right away
• Avoid dangerous pets
• Keep walkways and porches free of ice or debris
• Keep your house habited, don’t let it go vacant if you need to leave town for an extended time

But even with the best of care, accidents happen. And the liability portion of your Colorado homeowners insurance policy exists to help with lawsuits that might occur if someone gets injured at your home, or if their property is damaged.

For instance, the liability portion of your home insurance could help when:

• A visitor trips and stumbles on your porch. They need to go to the hospital right away for a broken wrist.
• A salesperson parks in your driveway. A tree limb falls on their car and crushes it.

How Much Liability do I Need on my Homeowner’s Policy?

Most Colorado homeowners insurance policies will include a minimum of $100,000 coverage. But considering the skyrocketing costs of healthcare, most agents will suggest you purchase more.

• $300,000 or $500,000 of liability coverage is available with most home policies.
• But you can buy an umbrella policy or stand-alone liability policy if you feel you need more protection.

Sometimes, liability coverage can also protect your investment if you get sued for other issues that happen away from home. This is where insurance policies get complicated, and we don’t speak on behalf of any insurer. Just know that if you’re getting sued for any reason, it’s worth a call to your Colorado homeowner’s insurance company. Your legal fees might be covered.

Finally, we’ll leave you with a few tips on getting a good price for homeowners insurance in Colorado.

How to Get a Great Price on Colorado Homeowners Insurance

Shop around for great rates on homeowners insurance. Insurers are known for attracting new business with lower rates and then inching up the price over time. It is a known marketing technique in the industry. We here at Einsurance.com provide you with free online Colorado homeowners insurance quotes.

You should also:

• Consider bundling policies for discounts
• Mention your vocation, some insurers provide discounts to professionals
• Install a sprinkler system or home security system, and let your insurance company know

We hope you’ve enjoyed our dissertation on Colorado homeowners insurance. We’ve addressed all the common questions about home insurance. Check out our insurance journal for more valuable resources.