type of home insurance to buy if wouldn't rebuild a similar house

[Dave Lewis]

(This is a question about a home I'm buying to live in, not my rental property.)

I've had an offer accepted on a house in a suburb of Denver and am shopping for home insurance. We plan to live in the house for 5-7 years and then move elsewhere in Colorado. The house was built in 1965 on a large lot, and is toward the low end of prices (~$600K) for houses in that neighborhood.

In the event of a disaster that destroyed the house, it wouldn't make sense to rebuild a similar house on that lot. We'd want to either use the settlement to build a house better designed to be expanded by the next owner, or simply accelerate our plans and use the settlement money toward the purchase of a house in another area of Colorado.

What should I be looking for with respect to the type of insurance? I'm less interested saving money on coverage than in being covered as well as possible in a catastrophe.

My first thought was to go with one of the few companies still offering guaranteed replacement cost coverage. But would that lock us into rebuilding more or less exactly the same design of house we had before? I've found a strange lack of discussion of how much flexibility various kinds of insurance give on rebuilding.

[Paul Fudge]

Dave, the best type of policy that is available here in Florida is called an HO-3 policy type.  Some companies in some states offer an HO-5 (which provides more coverage).  But if the HO-3 is the best you can get in CO, it will do what you want.  It will replace with equal or like value up to the limit of the dwelling coverage (Coverage A).  That does not require you to replace the house with the same plan, and if you do rebuild with another structure, will give you the full amount of Coverage A.  An HO-5 policy would do the same thing but would give you other enhanced coverages beyond the scope of your question.  As a side note, the HO policies are only available for owner occupied houses.  Guaranteed replacement is not available in Florida, but I don't think it would help you unless you actually replace the same house.  A local independent agent there could answer that question for you.