Wiser Financial Advisor – Checking that Your Home is Adequately Insured, Guest Eric Weedin
Hi, Everyone. Welcome to the Wiser Financial Advisor where we get real, we get honest, and we get clear about the financial world and your money. This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services.
Let the financial fun begin!
In December of 2021, there was a devastating fire in Colorado sparked by a grass fire. 1200 homes burned down, creating untold damage. To add insult to injury, many of these homeowners found out that they did not have enough insurance coverage to replace their homes.
Recently I had the opportunity to sit down with insurance expert Eric Weedin. Eric is part of a third generation managing the Weedin agency in Loveland, Colorado. Eric has a number of insurance accolades and also teaches courses to insurance agents across the country. Our conversation is about more than what happened in the Marshall fires; it’s about how to make sure you’re properly insured. For those of us who are not insurance experts, how do we check our coverage to make sure we’ve got the right agent and the right insurance company to protect our home, which is probably one of our most valuable assets. I think you’re going to find this helpful and informative. Regardless of where you live in the country, hopefully this will help you evaluate your own insurance coverage. With that, take care and God bless.
Josh: Hello, Eric. A lot of questions come up about homeowners insurance coverage and making sure that people aren’t vulnerable. Before we get there, I want to talk about you, and the breadth and depth of your insurance background.
Eric: The Weedin Agency is a family business. This is our 66th year in business in Northern Colorado. My grandfather founded it. He came out here on a handshake deal to start selling insurance and real estate at the time. A couple years later he bought out an agency in Loveland that goes all the way back to 1915. So it’s continuously operated for over 100 years and in my family for more than 66 of those years.
When I jumped into the business, that first year I could barely spell insurance. I do have a college background in management and computers (and music, as little as that helped me with insurance), so at least I understood business, but I did not necessarily have a solid understanding of what insurance was and how it worked. I started taking classes. Some of the best ones are put on by the National Alliance for Insurance, Education and Research. I earned my Certified Insurance Service Representative. Later, I got the elite designation of Certified Insurance Counselor, CPA, and I’m working on a risk management designation right now. I teach insurance classes to other agents across the country and it really keeps me on my toes because you have to stay at a high level of knowledge and expertise.
Josh: Agents get a lot of cases these days. There’s this misconception that insurance is just this commodity you can go buy online or that you should just go find the cheapest thing that you can get. But then something serious happens like the Marshall Fire, and then nobody cares about price. It’s all about, “Am I actually covered or am I vulnerable?”
Eric: Yeah, the insurance industry as a whole has been terrible about marketing. Think about virtually every insurance ad you’ve ever seen, and almost all of them focus on one thing: saving money with cheap premiums. In reality, the cheapest premium rarely results in having the right coverage or the appropriate coverage, or in most cases definitely does not result in having the best coverage.
I’m not saying this to beat up on one company but there are a lot of agents out there that represent one company only. They learn that company’s rules and programs very well. To their credit, they’ve done a good job with that, but they’re really not aware of the big picture of the other things available to people. An independent agency that represents many different companies will be aware of that, which does a couple things for the agency and even more for the consumer.
The agency, of course, has to learn to read coverage forms and understand differences between them, and there is more difference than just the bottom line. It gives the consumer choices because an independent agency can really dig down and figure out what is needed for a particular client’s needs or exposures.
An exposure could be something like owning a boat or having a rental property. Or maybe you’ve got an in-home business and things like that. An independent agent is better equipped to understand how to layer coverages properly to make sure that those exposures get taken care of.
So in my opinion, the best way to shop for insurance is to find an independent agent that represents many different companies. Find out what kind of commitment to education does this agency have. Sometimes there is reluctance from agents to show their designations because they’re afraid of getting sued. I get that, because there is actually advice that says if you are in a designation, keep your mouth shut about it, don’t tell anybody. But when I’m presenting something to people, I want them to understand—especially if it costs them more money than what they were expecting—that there’s a reason for it. I can back it up with facts, policy, language, cases, examples of claims that have been paid.
So I do recommend finding out what the commitment to education is on that agent’s part. For example, you can go get continuing insurance education and all you spend is 3 hours learning about what kind of glue is used to buy a new windshield on a car. It’s vitally important for a glass shop to know that but I don’t understand how that makes an insurance agent any better, if that’s where they’re getting most of their continuing education.
I frequently show people a couple of options. I might show them the less expensive option, but then show them the better option that provides the better coverage and say you’re going to pay more for this because of x, y, z, and this is why this is a smart idea. I don’t force anyone into it, but I at least try to demonstrate the reason.
If an agent just emails you a quote and says, “Here it is,” why did you get an agent? You could have done that on a website. Or if they just present you apples to apples, that’s almost a dirty word in my office.
I don’t like apples to apples because how do I know that other agent that you came from knew what the heck they were doing? I want to see what you had, but if there are problems I’m going to fix them and present that insurance package as the way to go. I won’t just say, “Hey, by the way, I did apples to apples and you still have these problems.” That doesn’t inspire confidence. I’d rather fix the problem and demonstrate the facts. And most of the time, fixing problems is not expensive.
In today’s day and age, having someone that knows insurance, knows the policy contract language and can compare and contrast these different companies with ease, are all important things. No one loves writing their check for insurance, Josh. You probably don’t like writing that big check every year. And I understand. I don’t love it either. It’s not my favorite bill. I’d rather spend the money on a nice vacation or something, but my wife and I both understand that all the vacations in the world are going to go away if we suddenly get sued and we can’t protect ourselves, or if we lose our house in a fire and we didn’t have near enough coverage. All the work that we’ve done to build our future is gone then. And did it matter if I saved $500 bucks on my insurance if I didn’t have the right coverage? The answer is, “Of course not.” It doesn’t make any sense at all to do that. But our advertising in the insurance world focuses on that. Many people get caught up in it.
Josh: Yeah, I think in the case of homeowner’s insurance, a lot of us just take it for granted, right? Because we don’t believe that our house is going to be the one that’s going to burn down or get hit by a tornado or something like that. So, let’s talk about the Marshall Fire. All these people got up and left for their day to go to work or school or wherever they were going. They don’t live in the mountains, but in Colorado one of our few weather flaws is that we have high winds from time to time. Would you describe what happened in this situation so people can understand the problem and where people got stuck financially?
Eric: Yeah, well, it’s a great question. It’s not a great story, unfortunately. I like stories that have some happy endings and some people will, but there was real tragedy for so many people in Northern Colorado. December 30th, there were high winds. There’s still debate about what started the fire, so I can’t tell you exactly how it started. There are a lot of possibilities. We may end up finding there were multiple ignition points to that fire, and it might be difficult to figure out which one actually led to the most devastation because they all merged at some point if that’s indeed the case. But with those high winds and with current building standards in so many of these neighborhoods where we have near zero lot lines—I mean, it’s not uncommon to find houses so close to one another that you can hardly push a lawnmower between the two houses—so, you get a fire burning in one and that wind driving it is spread from house to house very easily.
The flames were big enough, and embers were hot enough and there was enough wind that even a a natural break such as a road, which would normally stop a fire, was not adequate. We are not talking about a heavily wooded area or remote mountainous area like we’ve seen in recent Colorado fires such as the Cameron Peak fire. We’re talking about two communities, Louisville and Superior. They’re not thought of as these remote wooded areas like maybe Steamboat or Larkspur, Woodland Park or Conifer, places that have this exposure. In reality, this is a Denver-Boulder suburb. No one was expecting this kind of loss.
They had fire crews there from every community within probably 3 hours of Denver. They were all sending trucks and people. The winds were so bad they couldn’t really use helicopters and aircraft the way they would on some other fires. They were trying to evacuate people, trying to save lives. I can’t fault the fire professionals. They were in an untenable position there, just nothing they could do.
So that that was how it all started and the results became apparent very quickly. It was a perfect storm.
Not gonna blame any one person, but there are agents out there that don’t know how to stand their ground when something is the wrong way to write a policy. There are customers that knowingly insisted on less coverage because they wanted to pay a lower premium. They gambled. In their thought process, maybe they understood the statistic that only one in about 300 homes ever experience a fire. Even fewer than that have complete losses from a fire, so they were gambling that they would never have a total loss on their house. They gambled that if they were a couple hundred thousand dollars under-insured, it wouldn’t be a big deal. Well, they found out they were wrong.
We’ve seen pressure from lenders. There are awesome people in the mortgage business, but I’ve seen some lenders come to our agency and pressure the agent to get the premium down because with a particular customer’s ratios, they won’t close on a loan if we can’t get the payment down by reducing premium costs. So there’s that.
Also, a lot of other people didn’t ever choose to work with an agent. They did it themselves through an 800 number through a website. Maybe they used a dial-a-stranger type of shop as I call it, to get insurance, one where you’d never know who you’re going to talk to because they’ve got call centers across the country. You don’t know if they have a clue about the actual realities of insurance in your community. Doesn’t necessarily mean they’re going to be bad at it, but I think the chances for problems definitely increase when you don’t have an agent that you can sit down and talk to.
Insurance agents are not trained in actual reconstruction appraisals, and I cannot swear to any person that I know it would cost $500,000 to rebuild a particular home or $1,000,000 to rebuild another home. I can give you a good estimate. And when the insurance company gives you that estimate, my next piece of advice would be to say, “Look this is a bare minimum at which the company will agree to insure this property. If it were me in your shoes, I would select a higher number than what they’re recommending, which you’re absolutely free to do.” Sometimes people are not aware when they get that replacement cost estimate that they’re allowed to say, yeah, it’s great, but I would feel a lot better at night with $600,000, not $ 500,000 on my home. The agent should accommodate that request very easily. And almost every company does that.
Note that the numbers as they come out from these reports on the Marshall Fire are showing anywhere between 60 and 70% of the homes insured in that fire were not insured adequately. That is a stunning number when we’re talking about just under 1200 homes that were total losses in that fire. There were even more that experienced heat or smoke or partial fire damage, but of the almost 1200 homes that were total losses, as many as seven out of 10 didn’t have adequate insurance.
Josh: It’s unbelievable. What a horrible experience for all these people who lost probably everything, to find out from their insurance company that it’s not going to be enough to replace the home.
Eric: Yeah, it’s devastating. I really think the next step after you make sure you have a good agent and you’ve selected good coverage based on that replacement cost estimate is to consult a contractor and get an opinion from them as well. Because they may tell you something that the replacement cost software doesn’t tell you. “Hey, that amount would have been true six months ago, but we know it’s actually way worse than that right now.” It doesn’t hurt if you have that kind of contact to leverage that and make sure you’ve got a high enough value on your home. Some of those companies will come out and do on-site inspections, but unfortunately, it’s a business and so they don’t just provide that service to every customer. I wish that were done because that would make me sleep better at night.
If you’ve got a million dollar home, there’s a good chance that that insurance company is going to come out and inspect it in person and tell you either, “Hey, we agree this is enough insurance,” or “You don’t have enough insurance based on what we’re seeing here, and we need to make that change.” If you get that kind of letter, you need to listen to it. You can’t ignore it. It’s really important.
Josh: Yeah, this is an unusual time I think. We talk to a lot of our clients and listeners on a day-to-day basis, and since that fire happened, a lot of people are wondering, “OK, what does this mean for me and how do I make sure that I’ve got the right amount of coverage?” You’ve spoken to that but how often should people be checking their coverage?
Eric: Right now, we’re seeing building costs are going way up and house values have really been skyrocketing, so over all people should be looking at the kind of coverage you have on your home.
In terms of home coverage, let’s use a fictional number. I don’t know anyone that has $100,000 home, but I’m going to use that figure to keep the math simple. So let’s pretend you have a $100,000 home. Most companies write the house for $100,000. They know there might be fluctuation and variances in labor and materials cost if they ever have to rebuild that home. But number one, those companies are going to apply an inflation adjustment to your policy year after year after year. Traditionally around here in Colorado we’ve seen it anywhere between 4 and 6%. This year is coming in at about 11 to 13% increased coverage. That’s important because your coverage is designed to increase over time.
Also, does your policy have guaranteed replacement cost (GRC) or does it have extended replacement cost? They’re not the same. There are agents out there that don’t have the knowledge and will present them as the same. They are not the same. So in an ideal world, you buy a policy to the full replacement value and you get guaranteed replacement cost on your home. If you can do that, you’re in really good shape. You’re never going to run out of coverage because there’s a guarantee they’ll rebuild your home.
That means it’s uncapped, so if we make it illegal to cut down a tree tomorrow, and suddenly building costs have increased fivefold or tenfold, the customer with guaranteed replacement cost on the home can still sleep at night. They’ve got enough coverage—as long as you tell the insurance company anytime you make meaningful changes to your house that would increase the cost to rebuild by more than $5000, which is typically the cut off.
You have to look at your own policy language to know for sure. Most of these endorsements say $5000. So, for example, if you replace old carpet with new carpet, no one cares. You don’t have to tell anyone.
You replace the door handle, no one cares. But if you take an unfinished basement and suddenly you’ve got a home theater system and extra bedrooms and a wet bar, you’d better tell them about that. If you add onto the home, add that sunroom or invest in solar panels and put those on top of your house, we need to know about that. The company needs to be allowed to change the coverage amount at that point so that you don’t run out of coverage.
The less-than-ideal situation is unfortunately the most common situation, which is extended replacement costs, sometimes called a dwelling extension. This gives you a percentage above and beyond the $100,000 (using our fictional number here). So they may say we pay 20% beyond whatever coverage you have on the home. So do the math. That’s an extra $20,000 to account for variances in building labor and materials. There are a couple of companies out there and all they offer is a 20% extension. If you have that, find another option because it’s just not adequate and under today’s volatile market, 20% is nothing. Better take a minimum of a 50% extension and several companies out there will offer a full 100% extension so that $100,000 then would be $200,000.
None of these options are as good as guaranteed replacement cost, but because not every company offers that, look for one that offers a minimum of 50% and preferably 100% dwelling extension. It’s a really important thing to know about. Some preparation will really help you in the long run. It’s tough for you to go through and write down a list of everything you have. You’re going to get writer’s cramp. Wouldn’t it be nicer if you just had a quick video tape? You can itemize on a quick video. Whatever happens, it’s going to make your life a lot easier in the long run.
With almost 1200 homes in the Marshall Fire, most of them are not gonna be back in their homes in six months, eight months. It might take them a year or two years. So, what does additional living expense
pay for? It pays for those additional costs above and beyond what your normal expenses are so you can rent a new place or stay in a hotel room temporarily. In the short term, you’re going to have extra costs because you won’t have a kitchen to cook in, so you’re eating out every meal instead of having stuff at home. It could involve boarding your pets. There are all sorts of things that might be involved in additional living expenses. And so, having a policy that pays for a minimum of two years of those
expenses is really important.
Insurance is regulated for homes and cars and things like that at the State level. What’s true in one State may not be true in another State, so this is where having someone that understands your local laws is also important. Many people only select a 12-month additional living expense option on their homes. Those that were victims of the Marshall Fire found out in a hurry how expensive it is to continue paying the mortgage on your home that’s gone, because your bank still expects to get paid. There are a lot of misconceptions that the insurance company is going to give you a check for $500,00 if your house is insured at $500,000. That is definitely not the way that’s going to work. But an independent agent usually will be able to guide you through that so you’ll know what to expect.
Josh: This so worth knowing about, super helpful stuff. Thanks for sharing your expertise. How can people find you, Eric?
Eric: Our agency is right here in Loveland, Colorado. Physical address, 1601 E Eisenhower Blvd. You can of course reach us by phone at 970-667-2145. Or if you want to email me directly, if you’ve got a question or you just want to run something by me, I’m happy to give your listeners some free advice and some free counseling. Even if I’m not writing their policy, it’s not a condition of my help. You can email me at firstname.lastname@example.org And I would be glad to give you that time.
Josh: Alright, thanks Eric.
Eric: Thank you Josh, appreciate you.
We love feedback and we’d love it if you would pass it on to me directly at email@example.com . Also please stay plugged in with us, get updates on episodes and help us promote the podcast. You can subscribe to us at Apple Podcasts, Spotify or your favorite podcast service.
This episode has been prepared for informational purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.