The Wiser Financial Advisor: How To Make Sure Your Home In Properly Insured (#78)

In the past few years wild fires have destroyed thousands of homes, even entire towns.

In December of 2021, there was a surprise devastating fire that swept through several neighborhoods in Marshall, Colorado and burned down 1200 homes. This wasn't a forest fire. It started as a simple grass fire. But it was fueled by very high winds that day. To add insult to injury, many of the homeowners (7 out of 10) found out they did not have enough insurance coverage to replace their homes. The message to homeowners is BE PREPARED! But how to prepare properly?

Guest Eric Weedin is a national leader in the Insurance industry. Eric has a number of insurance accolades and also teaches courses to insurance agents across the country. Host Josh Nelson's conversation with Eric covers questions concerning how to make sure you're properly insured. How do you check your coverage to make sure you've got the right agent, the right insurance company to protect your home and more. We hope this podcast helps you.

Resources:
https://www.weedinagency.com/eric-weedin
https://keystonefinancial.com/podcast

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Contact Josh Nelson: https://www.keystonefinancial.com
Contact Jeremy Busch: https//www.keystonefinancial.com
Podcast Editing: Tim Leaman/info.primegen@gmail.com

Transcript

Hi, everyone. Welcome to the Wiser Financial Advisor Show with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money. This is Josh Nelson, founder and CEO of Keystone Financial Services. Let the financial fund begin
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In December of two thousand and twenty one, there was a devastating fire in Colorado sparked by a grass fire over twelve hundred homes burned down. Untold damage and 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 Wheaton. Eric is part of a third generation managing Wheaton agency in Loveland, Colorado. Eric has a number of insurance accolades and also teaches courses to insurance agents across the country.
The conversation really is about not just what happened in the Marshall fires, but also how to make sure that you're properly insured. For those of us who are not insurance experts, how do we actually look at our coverage and make sure that we've got the right coverage, the right agent, to the right insurance company to make sure our home, probably one of our most valuable assets, is protected. I think you're gonna find this very helpful and informative and hopefully something that regardless of where you live in the country, something that will help you evaluate your own insurance coverage. With that, take care, and god bless…
A lot of questions that come up about homeowners insurance coverage and and making sure that people people aren't vulnerable. Uh, but before we get there, I actually wanna talk about you a little bit. Let's talk about your background. And, uh, what can you share with our listeners as far as your, uh, the kind of the breadth and the depth of your insurance background? With the Wheaton Agency, it's a family business.
This is our sixty sixth year in business in Northern Colorado. My grandfather founded it…and came out here on a handshake deal to start selling insurance and real estate, uh, at the time. Couple years later, he bought out the oldest agency in Loveland, uh, that goes all the way back to nineteen fifteen. So it's continuously operated for over a hundred years and my family for over sixty six at that time. Jumped in that first year, I could barely spell insurance.
I mean, I did have a college, uh, background in in management and computers and music as little as that helped me with insurance. So I at least understood business, but I did not necessarily have a really solid understanding of what insurance was and how it did. I started taking classes. Some of the best ones that I I I really believe in are are the classes put on by the National Alliance for Insurance Education Research. I earned my certified insurance service representative, then I later got the elite designation with that.
I am a certified insurance counselor, CPIA. I'm working on a risk management designation right now. I teach insurance classes to other agents across the country, and I think it really keeps me on my toes because I you have to stay at a very high level of knowledge and expertise to do this. I get a lot of cases these days. I think there's this misconception that insurance is just this commodity and you can go buy it online or that you should just go find the cheapest thing that you can get.
But then something serious like this, like the Marshall fires, it happens, and then nobody cares about price. It's all about, you know, am I covered? Right? Am I actually covered or am I vulnerable? Yeah.
The insurance industry as a whole has been really sort of terrible about their marketing. You think about virtually every insurance ad you've ever seen and almost all of them focus on one thing, and that's saving money or cheap premiums. In reality, the cheapest premium rarely results in having the right coverage or, uh
, the appropriate coverage or, in most cases, definitely does not result in having the best coverage. I think you wanna be in my opinion…
the smartest way for someone to shop for insurance is is not is and and I'm not saying this to beat up on any one company, but there's a lot of agents out there that represent one company only, and they learn that company's rules and and programs very well. They to their credit, they've done a good job with that, but they're really not aware of the big picture out there of the other things available to people, like an independent agency is who represents many, many different companies. That does a couple things for the agency and does even more for the consumer. The agency, of course, has to learn to read coverage forms and understand differences between them, that there is more difference than just the bottom line, how much is this? And then for the consumer, it really gives them choices because a independent agency can really dig down and figure out, hey.
Due to this client's particular needs or exposures, and an exposure could be something like owning a boat or having a rental property, or maybe you 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 I think the first thing I would say is, a, find an independent agent that represents many different companies. The second thing I would advise is to find out what kind of commitment to education does this agency have if they earn designations. Now there are is some reluctance from agents to show their designations because they're afraid of getting sued, and I I get that.
There's actually advice as if you're in a designation, keep your mouth shut about it. Don't tell anyone. I'm of the opinion that I want people to understand when I'm presenting something and especially if it costs them more money than what they were expecting. There's a reason for it, and I can back it up with facts, policy language, cases, uh
, examples of claims that have been paid. And I so I think, you know, the second factor, as I said, is is find out what's that commitment to education on that agent's part. For example, you can go get continuing insurance education, and all you spend is three hours learning about what kind of glue is used to apply, uh, a new windshield on a car. I I I think it's vitally important for that 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, it's prying on a a agent that is taking the coverage seriously enough, and they're probably one that is just selling on price.
I frequently show people a couple of options. I might show them the less expensive option, but then I show them the better option that provides the better coverage and say, you're gonna pay more for this because 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 for it. If the agent just says emails you a quote and says, here it is, well, why'd you get an agent? You could've done that on a website.
Or if they just present you apples to apples, that's that's like a it'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? Yeah. I wanna I wanna see what you had, but if there are problems, I'm gonna fix them and present that insurance package as the way to go…
and not just say, hey. By the way, I did apples to apples, and you still have these problems. Well, you know, that that doesn't that doesn't inspire confidence in or in the agent. I'd rather fix the problem and demonstrate the fix. And most of the time, it's fixing problems is not expensive.
But you're you're absolutely right. In today's day and age, having someone that knows insurance, knows the policy contract language, can compare and contrast these different companies with ease. Boy, these are all important things, and no one loves writing their check for insurance, Josh. You you probably don't like writing that big check every year. Uh, I understand it.
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, you know, all the vacations in the world are gonna go away if we suddenly get sued and we can't protect ourselves, or if we lose our house and fire, we didn't have near enough coverage. All the work that we've done to build our future is gone.
And did it matter if I save five hundred bucks on my insurance if I didn't have the right coverage? And 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, and many people get caught up in it. Yeah.
I think in the case of homeowners insurance, a lot of us just take it for granted, right, uh
, because we don't believe that our house is gonna be the one that's gonna burn down or get hit by a tornado or something like that. It's always talk about the Marshall Fire. I think, you know, all these people got up and left for their day, uh, to go to work or school or wherever they were going, uh, and they don't live in the mountains. But, uh, Colorado, one of our weather flaws, I think one of our few weather flaws is that we have, uh, high winds from time to time. And, uh, yeah, just describe what happened in this situation, you know, so people can kind of understand, uh, really the problem and and where people got stuck financially.
Yeah. Well, yeah, it's a great story. Uh, I mean or it's a great question. It's not a great story, unfortunately. I I I like stories that have some happy endings, and some people will, but real tragedy for for so many people in in Northern Colorado.
December thirtieth, there was high winds, and there's still debate about what started the fire. So I I can't tell you exactly how it started. There's a lot of possibilities. We may end up finding there were multiple ignition points to this 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 if that's indeed the case. But with those high winds and with, of course, 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.
You you can hardly push a lawnmower between the two houses. So you get a fire burning in one, and that wind driving it spreads from house to house very easily. And the flames were big enough and embers were going enough, and there was enough wind that even a natural break, which would normally stop a fire like a road, was not adequate to do this. You know, we were not talking about a heavily wooded area or a remote mountainous area like we've seen in recent Colorado fires, for example, the Cameron Peak fire. This is a community.
Two communities, Lewisville and Superior, they're they're not thought of as these remote, you know, wooded areas. People sometimes in Colorado think of places like maybe Steamboat or, I don't know, Larkspur, Woodland Park, or Conifer as these types of places have this exposure. But in reality, this is a Denver boulder suburb. No one was expecting this kind of loss. The fire crews, they had fire crews from every community within probably three hours of Denver.
There, they were all sending trucks and people and, you know, the winds were so bad they couldn't really use, like, uh
, helicopters and aircraft the way they would on some other fires. But there was not much they can do. They were trying to evacuate people. They were trying to save lives. And and I can't fault the fire professionals.
They were in an untenable position there. There there's nothing they could do. So that that was how it all started, and the results of this became apparent very, very quickly. You know, it's a perfect storm. We're not gonna blame any one person.
There are agents out there that don't know how to stand their ground and and insist that this is a wrong way to write a policy. There are customers that knowingly insisted on less coverage because they wanted to pay less premium. You know, they gambled, but in their thought process, they they maybe understood the stat that only one in about three hundred homes ever experiences a fire, and even fewer than that are complete losses from a fire. So they were gambling that, hey. I'm never gonna have a total loss in my house.
So if I'm a couple hundred thousand dollars under insured, it's not gonna make a big deal. Well, they found out they were wrong. Uh
, we've seen pressure from lenders. I I've seen…and there's awesome people in the mortgage business, but I've seen some lenders come to our agency if it's happening to us and what's happening to others, where they have pressured the agent to get the premium down. Because with this customer's ratios, they won't close on this loan if if we can't get the down payment down through the escrow…by reducing premium costs. So there's that. There's a lot of other people that didn't ever choose to work with an agent.
They did it themselves through an eight hundred number, through a website. They maybe used a dial a stranger, uh, type of shop to get insurance, as I call it. One where you'd never know who you're gonna talk to because they just got call centers across the country, and you don't know if they have a clue about the actual realities of insurance in this community. Doesn't necessarily mean they're gonna 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.
I cannot swear to any person that I know it would cost five hundred thousand dollars to rebuild this home, a million dollars to rebuild this home. I can give you a good estimate. When the insurance company gives you that estimate, my next piece of advice is to say, look. This is a bare minimum at which the company will agree to insure this property. Were it 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, yes. Great. But I I would feel a lot better at night with six hundred thousand, not four five hundred thousand on my home. Wonderful. That agent should accommodate that request very easily, and almost every company does that.
So the numbers as they come out from these reports are showing anywhere between sixty and seventy percent of the homes insured were not insured adequately. That is a stunning number when we're talking about twelve just under twelve hundred homes that were total losses in that fire. There was even more that experienced heat or smoke or partial fire damage, but there was almost twelve hundred homes that were total losses. And to understand, as many as seven out of ten didn't have adequate insurance. It's unbelievable.
Yeah. I mean, as horrible as that experience must have been for all these people, and they lost probably everything. And then they find out from their insurance company that it's not gonna be enough to replace the home. Yeah. It's devastating.
I really think the next step after you make sure you have a good agent and you select a good coverage based on that replacement cost estimate, and if you know a contractor, get an opinion from them as well because they may tell you something that the replacement cost software doesn't tell you. Hey. That was 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 just sort of make sure you're doing it. If you've got a high enough value home, some of those companies will come out and do on-site inspections as well.
But, unfortunately, it's a business, and so they don't just provide that service to every customer. I wish that were done because my goodness, then that would make me sleep at night a lot better. But, unfortunately, it's just not the case. But, yeah, if you've got a million dollar home, there's a good chance that that insurance company is gonna come out and inspect it in person and tell you, hey. We agree this is enough insurance, or you don't have enough insurance based on what we're seeing here.
We need to make that change. If you get that kind of letter, you need to listen to it. You can't ignore that. So really important. Yeah.
This is unusual time, I think. And we talk to a lot of our clients and, uh
, listeners on a day to day basis. And after this happened, a lot of people are wondering, okay. What does this mean for me? And how do I make sure that I've got the right amount of coverage? And you've spoken to that a little bit, but how often should be people, uh, checking their coverage?
Right now we're seeing, uh, you know, building costs are going way, way up, and house values have really been skyrocketing. So, overall, really, what should be people doing? You wanna look at the kind of coverage you have on your home. When we talk about home coverage, let's just use a fictional number. I don't know anyone that has a hundred thousand dollar home, but I'm gonna keep the math simple.
Okay? So let's just pretend you have a hundred thousand dollar home. Most companies, you know, you write the house for a hundred thousand. They know that there might be fluctuation and variances in in labor and materials cost if they ever have to rebuild that home. So there's a couple of things that happen.
Number one, those companies are gonna apply an inflation adjustment to your policy year after year after year. Traditionally, around here in Colorado, we've seen it anywhere between four and six percent. Renewals I'm seeing this year are coming in at about eleven to thirteen percent increased coverage. That's sort of important because your coverage is designed to increase over time with you. The endorsements you wanna look at on your policy, you wanna find out, does your policy have guaranteed replacement cost, GRC, or does it have extended replacement cost?
They are not the same. Agents out there that don't have the knowledge 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.
Uh
, 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 and suddenly building costs increase fivefold, tenfold, that customer guaranteed replacement cost on the home is can still sleep at night. They've got enough coverage. As long as you have to tell the insurance company anytime you make meaningful changes to your house, that would increase the cost to rebuild your house by more than five thousand dollars is typically the cutoff. You have to look at your own policy language. You know, for sure, most of these endorsements say five thousand.
So for example, you replace old carpet with new carpet. No one cares. You don't have to tell anyone about that. You replace the door handle. No one cares.
It's not a big deal. But you take an unfinished basement and suddenly you've got a home theater system and extra bedrooms and wet bar. Oh, you better tell them about that. You add on to the home. You add that sunroom off.
You invest in solar panels and put those on top of your house. We need to know about that, and the company needs to be allowed to change the coverage amount at that point so that you don't run out of coverage. So that's that's the ideal situation. The less than ideal situation, and, unfortunately, it is the most common situation, is extended replacement cost, sometimes called a dwelling extension. But this gives you a percentage above and beyond the hundred thousand using our fictional number here.
So they may say we pay twenty percent beyond whatever coverage you have on the home. So do the math. That's an extra twenty thousand dollars to account for variances in building, labor, and materials. Uh
, I'll tell you twenty percent isn't enough, and there's a couple of companies out there that's all they offer is a twenty percent extension. If you have that, find another option because it's just not adequate under under today's volatile market. Twenty percent is nothing. I'm gonna tell you, if you have the extended dwelling option, better take a minimum of a fifty percent extension, and several companies out there will offer a full hundred percent extension. So that hundred thousand dollars then would be two hundred thousand if you had the hundred percent dwelling extension.
None of these options are as good as guaranteed replacement cost, but because not every company offers it, look for one that offers a minimum of fifty percent and preferably a hundred percent dwelling extension. It's a really important thing to know about. I really believe, like, in most things, 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 gonna get writer's cramp.
It'd be nicer if you just had a quick videotape of your shed and you can itemize that, a quick videotape of your basement, uh
, whatever it happens to be. It it just might gonna make your life a lot easier in the long run. With almost twelve hundred 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, two years. So what does additional living expense or loss of use pay for?
It pays for those additional costs above and beyond what your normal expenses are. So you can rent a new hall or stay in a hotel room temporarily. In the short term, you're gonna have extra costs because you're not gonna have a kitchen to cook in, so you're eating out every meal instead of having stuff at home. It can involve boarding your pets. There's all sorts of things that might be involved in additional living expense.
And so having, uh, a policy that pays for a minimum of two years of those expenses, really, really important for you to have. 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, uh
, someone that understands your local laws is also important. But many people only selected a twelve month additional living expense option on their homes for these that were victims of these marshall fires. And they're gonna find 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. And there's a lot of, uh, misconceptions that, you know, you just get their insurance company is just gonna give you a check for if your house insured at five hundred thousand dollars they just write you a check for five hundred thousand dollars Definitely not the way that's gonna work. But an independent agent usually will be able to guide you through that and Say, yeah.
These companies are offering it if you do this, this, and this. So worth knowing about. Yeah. Super helpful stuff. Thanks for sharing your expertise.
How can people find you, Eric? Our agency is right here in Loveland, Colorado. Physical address, sixteen o one East Eisenhower Boulevard. You can, of course, reach us by phone at nine seven zero six six seven two one four five. Or if you wanna email me directly, you've got a question or you just wanna 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, and my email is pretty simple. It's eric, e r I c, at weeden agency dot com. That's w e e d I n, and then the word agency spelled out, dot com. So weeden agency dot com, and I'll be glad to give you that time.
Alright. Thanks, Eric. Thank you, John. Yep. Take care.
Appreciate you. Yep. Bye…
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Investment advisory services offered through Keystone Financial Services, an SCC registered investment advisor…
Keystone Financial Services and Eric Wheaton are separate and nonaffiliated parties. Keystone does not endorse or receive compensation from Wheaton Agency Inc. The views expressed represent the opinions of Eric Wheaton. The views are subject to change. This material is for informational purposes only.