Inflation and the Impact on Your Homeowners Insurance

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Inflation and the Impact on Your Homeowners Insurance

Inflation impacts more than grocery lists and gasoline prices. Inflation can have a significant impact on your home insurance too.

Impact on Your Homeowner Insurance

When it comes to your home insurance, inflation impacts home construction, labor, and materials costs, meaning when the cost to rebuild your home begins to skyrocket, this can leave homeowners underinsured. Should disaster strike, you are left to rebuild your home following an insurance claim and essentially without adequate coverage, homeowners wind up having to cover the additional costs themselves for the rebuild. Ouch!

In this economic climate, it is important to know you have enough insurance to cover the cost of a home rebuild and to ensure you always are fully protected.

Replacement Cost and Dwelling Coverage

Insurance companies use replacement cost calculators to determine the dwelling coverage in your homeowner policy. Dwelling coverage is the amount a carrier will cover to rebuild your home in the event of a claim. Dwelling coverage is not the same as the amount you paid to purchase your home, so it is important to understand the difference.

One method to calculate the dwelling coverage involves multiplying a home’s square footage by the current cost of construction per square foot, and most estimates range between $100 to $200 per square foot. The declaration page of your policy shows you if you are covered by replacement cost (rebuild cost) or the actual cash value (we will get to that in a second). Check with your insurance advisor if you are unsure where to find the dwelling coverage amount on your policy.

Replacement cost coverage helps cover the repair to your home or replace the lost belongings up the covered limits without including depreciation or the naturally occurring loss in value of items over time. All of this essentially means, your carrier will pay to rebuild your home to the condition it was before the claim and replace personal property included in your policy.

Actual Cash Value Coverage

Actual cash value coverage does account for depreciation and likely means you will have to pay the difference between what the insurance carrier will cover and the actual cost to replace your belongings.

Extended Replacement Cost Coverage

Extended replacement cost coverage can be added to a policy to help offset the uncertainties of a rebuild. This type of coverage will pay over the dwelling coverage limit if the amount is not enough to cover the rebuild. Extended replacement cost coverage pays a percentage over the dwelling coverage limit, should the amount not cover the complete rebuild and replacement of your home and belongings.

If you want reassurance your carrier will cover the entire cost of a rebuild during times of inflation or any other time of uncertainty, consider guaranteed replacement cost coverage. This can assure that if the time comes for a claim, your home will be covered and you won’t have to worry about paying for the costs out of pocket. You may pay a higher premium, but you can be rest assured you are fully protected regardless of economic conditions or should disaster strike.

Other Coverage Options to Consider for Your Homeowner Insurance

You can also consider inflation guard which offsets the instance of being underinsured due to inflationary conditions, but make sure to not lower your coverage limits to save on your home insurance. Inflation guard is there to help you stay in line with the inflation rate of the US dollar.

Inflation has many ramifications on all areas of our lives, but there are several ways we can still stay protected during these uncertain times.

Speak with an Advisor

If you want to speak with someone about making certain your home is protected, be sure to reach out to one of our Covered Insurance Advisors as they are always here to assist with questions, review your policy, and help with making changes to your policy coverage limits should you need to do so. Contact us anytime!