Make sure your Real Estate is actually insured!
Andy Geesen is one of the most knowledgeable real estate investors I’ve ever met. Fortunately for me he picks up the phone when I humbly call him. Together we’ve had many fruitful conversations. Andy has had a very successful career in the insurance business. Over the years, he and his wife Margaret put together throughout the years a portfolio of residential rental units in California, and they are the proud owners of a secondary home in Basalt. He took the time to write this note to share his recent experience regarding insurance and replacement cost… That’s precious information for all homeowners in our area.
Thank you Andy!
“Time to Review Your Insurance?
As any homeowner is likely well aware, one of Covid’s biggest impacts over the past several years has been on real estate - where historically low interest rates and scarce inventory have resulted in soaring prices and a strong seller’s market. Perhaps slightly less obvious - but certainly no less impactful - has been a significant rise in the costs to maintain, improve, or replace real property. And this brings us to the topic of homeowners insurance.
Virtually any home insurer uses proprietary software to establish a home’s (or commercial structure’s) replacement value - Coverage A on a homeowners policy. Importantly, Coverage A is not the market value of the real estate at the insured address; it is simply an estimate of the cost to fully replace the actual structure(s) on the property if they were destroyed by a covered peril (fire and/or wind, hail, etc.). Coverage A is a key component of any homeowners policy - not only because it establishes a base replacement value, but several of the other ancillary coverages on the policy - personal property, detached structures, and loss of use - are simply straight percentages of Coverage A, and therefore directly related to that figure. In the years leading up to Covid, most property in the Valley could reasonably be insured for $250-$350/ sq. ft. (High end, custom built properties such as many of those in and around Aspen might obviously require a much higher value.) With labor and material costs soaring across the country - a phenomenon seemingly exacerbated here locally - construction costs have increased twofold and more over the past several years. Ask any builder or architect in the Valley, and they’ll tell you that - even for average grade construction, all-in costs now start at about $600/ sq. ft. And based on their workload and backlog, high construction costs - while they may start to stabilize - aren’t likely to come back down any time soon.
Most home insurers - and certainly the policies they write (and renew) - have not yet adequately accounted for recent building cost increases. Typical renewal premium bumps of 4-8% haven’t been nearly enough. The good news is that, for most property owners, their policies include “extended” coverage - usually in the 10-50% range - that trigger Coverage A limit increases if they are needed. So the question becomes this: If, for example, a large wildfire were to sweep through the Valley and destroy several hundred homes, what might be the impact on construction costs - as an already stretched contractor force is taxed even further? Even with any extensions of the Coverage A limit to your policy, would you be adequately insured?
This is a question you may want to pose to your agent or insurance company, and sooner rather than later. Increasing your Coverage A limit (and again, as a direct result, your ancillary limits) is typically not terribly expensive, especially given the added protection you receive. Keep in mind: properly and adequately insuring a piece of real property is not solely the responsibility of the insuring company or its agents. The ultimate onus lies on the property owner to ensure that structures on his or her particular property - including any upgrades and/or customization, are properly covered. "
Andy Geesen
10/5/2022 “
