It started as an ordinary evening walk.
My husband and I were strolling through our neighborhood when we noticed smoke. Within minutes, a house down the street had flames pouring from the garage. By the time the first fire truck arrived, the fire had already taken hold. We stood on the sidewalk and watched three full firetrucks worth of firefighters work for more than 20 minutes before they got the blaze under control.
The damage was devastating. Both cars parked in the garage were completely destroyed. The garage itself was a total loss. And because the attic connects the house to the garage, smoke had pushed through the entire house. The kitchen sits directly behind the garage. That kitchen will need to be gutted and rebuilt from scratch. The family who lives there now faces a long, expensive road back to normal – and the question that immediately came to my mind was not “will insurance cover this?” but rather “will insurance cover enough?”
That question led me back to a conversation I think about every time I hear about a major property loss: the Bonus Episode we did with Steve Longenecker about homeowners insurance. If you missed it, or if it’s been a few years since you thought about your own coverage, this article is your reminder. It’s time to pull out your policy, understand what you actually have, and make sure it’s enough.
The Marshall Fire Made This Personal for Coloradans
If you live in Colorado, you do not have to look far for a cautionary tale. The Marshall Fire tore through the Superior and Louisville areas in December 2021, destroying more than 1,100 homes in a matter of hours. It was the most destructive wildfire in Colorado history.
But what many homeowners discovered after the smoke cleared was almost as painful as the fire itself: they did not have enough insurance. News coverage and community forums were filled with stories of families who thought they were fully covered, only to learn their policies fell significantly short of what it would actually cost to rebuild.
This phenomenon – being underinsured – is not unique to Colorado, but the Marshall Fire put it on full display. And the reason it happens is often not negligence or carelessness. It happens because homeowners buy a policy, pay the premium every year without thinking about it, and never revisit whether that coverage still reflects reality.
Why Your Coverage Amount Goes Stale
Here is something many people do not realize: the replacement cost of your home is a moving target.
When you first purchased your home and set up your insurance policy, your insurer calculated what it would cost to rebuild the structure from scratch. That number was based on local labor costs, material prices, your home’s square footage, and its features. It was probably a reasonable estimate – at the time.
The problem is that construction costs do not stay flat. Over the past several years, the cost to build has climbed significantly. Labor shortages, supply chain disruptions, and inflation have all pushed the price of rebuilding higher. According to data from the National Association of Home Builders, residential construction costs have increased dramatically over the past decade, with particularly sharp spikes occurring after 2020.
If your policy has not been updated to reflect those increases, you may be insuring a $400,000 rebuild cost with a policy that caps out at $250,000. That gap comes out of your pocket.
Additionally, if you have made improvements to your home – a kitchen remodel, a bathroom addition, a finished basement – and you did not update your policy to reflect those upgrades, you are carrying coverage that does not match what you actually have.
What Happens When You Are Underinsured
Let’s walk through a scenario that is more common than most people think.
Suppose your home has a replacement cost of $600,000 – meaning that is what it would cost to rebuild it to its current condition from the ground up. But your policy only covers $400,000 because it was last updated five years ago before a major renovation and before construction costs spiked.
You have a total loss. A fire, a tornado, a wildfire. Your home is gone.
Your insurance company pays out $400,000. You are left trying to rebuild a $600,000 home with $200,000 less than you need. You either take on debt, downsize, or face years of financial strain – not because you were irresponsible, but because you did not revisit a document that was quietly sitting in a drawer.
This is what happened to many Marshall Fire victims. They were not uninsured. They were underinsured, and in practice, the outcome felt nearly as brutal.
The Pieces of Your Policy You Need to Understand
Homeowners insurance is not a single number. It is a collection of coverages, and each one matters. Here is a breakdown of the key components you should review.
Dwelling Coverage (Coverage A)
This is the amount your policy will pay to rebuild the physical structure of your home. This is the number most people focus on, and it is the one most likely to be out of date. You want this figure to reflect current construction costs in your area, not what construction cost five or ten years ago.
Other Structures (Coverage B)
This covers detached structures on your property – garages, fences, sheds, guest houses. If you think about my neighbor’s fire, both of those cars were covered separately (under auto insurance), but the garage itself falls under this coverage. If you have added or improved structures since you last reviewed your policy, this number may need to go up.
Personal Property (Coverage C)
This covers your belongings – furniture, clothing, electronics, appliances, and everything else inside the home. Most policies offer either actual cash value (what your items are worth today, after depreciation) or replacement cost value (what it would cost to buy the same item new today). Replacement cost value is almost always worth the additional premium. A ten-year-old couch might have an actual cash value of $200, but a comparable new couch could cost $1,500.
Loss of Use (Coverage D)
If your home becomes uninhabitable after a covered event, this pays for your temporary living expenses – hotel stays, rental housing, meals out. After a major fire, families can be displaced for a year or more while their home is rebuilt. Make sure this coverage is generous enough to cover what that would actually cost in your area.
Liability Coverage
This protects you if someone is injured on your property or if you cause damage to someone else’s property. Many financial experts recommend carrying at least $300,000 to $500,000 in liability coverage, and supplementing with an umbrella policy for additional protection.
Extended and Guaranteed Replacement Cost: The Upgrade Worth Asking About
Standard dwelling coverage has a cap. If rebuilding your home costs more than your coverage limit, you are on the hook for the difference.
There are two upgrades that can help protect against this:
Extended Replacement Cost adds a buffer above your coverage limit – typically 20% to 50% more. So if your home is insured for $500,000 with a 25% extended replacement cost rider, you would actually have up to $625,000 available to rebuild.
Guaranteed Replacement Cost removes the cap entirely. If it costs more than your policy limit to rebuild, the insurance company pays it anyway. This is the gold standard of dwelling coverage, and it is not offered by every insurer, but it is worth asking about.
After events like the Marshall Fire, where an entire neighborhood is destroyed simultaneously and demand for contractors skyrockets overnight, the actual cost to rebuild can spike well above what any pre-fire estimate would have predicted. Guaranteed replacement cost protects you from that scenario.
Getting Requoted Every Year: The Step Most Homeowners Skip
Here is the part of this conversation that I think matters as much as anything else: you should be getting your homeowners insurance requoted every year.
Not just reviewed – requoted. That means getting actual competing offers from other insurers to see whether you are paying a fair price for the coverage you have.
Insurance companies are not static. Their pricing algorithms change, their risk assessments evolve, and their appetite for certain types of policies shifts. A company that gave you the best rate three years ago might be charging you 20% more than the competition today – or they might be offering you a worse product for the same price.
Shopping your policy annually does two important things. First, it can save you real money. Many homeowners who have never requoted their insurance are overpaying. Second, it forces you to have a fresh conversation about your coverage levels, which is the moment you can catch the kinds of gaps that lead to underinsurance.
When you requote, bring the same level of scrutiny you would bring to any other major financial decision. Compare not just the premium but the coverage limits, the deductibles, the policy exclusions, and the claims reputation of the insurer.
A lower premium is meaningless if the policy does not pay out when you need it to.
Practical Steps to Take This Week
Reviewing your insurance is not a complicated process, but it does require you to actually sit down and do it. Here is a simple checklist:
1. Pull out your current policy and find your Coverage A limit. Look up current construction costs in your area. (This can be a quick Google search, “current construction costs in ‘my city, state’) If your limit feels low, it probably is.
2. Document what you own. Walk through your home with your phone and record a video of every room, opening cabinets and closets. Store this video somewhere off-site – cloud storage, an email to yourself, a shared drive. If you ever have a claim, this documentation will be invaluable. And if you own specialized or expensive items, definitely zoom in on the serial number, model number, etc.
3. Add up your improvements. If you have remodeled, renovated, or added to your home since you last updated your policy, estimate the cost of those improvements and tell your insurer. Your coverage should reflect the home you have now, not the one you bought.
4. Ask specifically about extended or guaranteed replacement cost coverage. Not every agent will proactively offer this. Ask directly. Also, ask the insurance agent about different options for coverage in general. “What questions should I be asking you?”
5. Get competing quotes. Contact at least two or three other insurers and compare what they would offer. Use an independent insurance agent if you want someone to do this comparison shopping for you.
6. Review your liability limits and consider an umbrella policy. If you have significant assets, your liability coverage should be high enough to protect them.
A Final Thought
That fire in my neighborhood was a hard thing to watch. A family lost two vehicles, a garage, and their kitchen in the time it took my husband and me to walk a few blocks. They will be dealing with the aftermath for months.
But what would be even harder is discovering, on top of all that loss, that the insurance policy they had been faithfully paying for years was not enough to make them whole.
You work hard for your home. You pay your premium every month or year without thinking about it. Take one hour this month to make sure that premium is buying you what you think it is. Review your coverage. Get it requoted. Ask the uncomfortable questions.
The time to find out you are underinsured is not after a fire. It is right now, while you still have the chance to fix it.
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