Impacts of inflation on Home Insurance
A properly designed home insurance policy provides you with adequate dwelling coverage if you need to rebuild your home due to a covered claim. However, rising inflation has caused the rebuilding costs to go up by many times and made homeowners increase their dwelling coverage to prevent themselves from being underinsured. This article revolves around the impacts of inflation on home insurance and how you can cope with them.

How is Dwelling Coverage Calculated?

Your home insurance policy is your financial savior when a covered peril or disaster demolishes your home and you need to rebuild it. Your insurance provider reimburses you for the replacement or rebuilding cost of your damaged home or residential property through dwelling coverage. To make sure that home insurance fulfils that promise, your dwelling coverage must be equal to or higher than the cost to rebuild your home; otherwise, you could end up underinsured. Moreover, when you decide to buy a home insurance policy, your insurance company calculates the estimated rebuild cost of your home by using a replacement or rebuild cost calculator that takes a variety of factors into account. You as the homeowner are tasked with making sure those factors are correctly reflected on your policy. Not paying attention or relying 100% on the carrier is no defense should the home be underinsured. A few of the factors taken into consideration include:

Types of Construction of Your Home
Types of Construction of Your Home
Age of Your Home
Square Footage
Quality of Building Materials used
Size of Your Home
Geographical Location (If possible)
Safety Features including sprinklers, fire alarms etc.

Impacts of Inflation on Home Insurance

In normal situations, you can expect your dwelling coverage to cover the rebuilding cost of your home. However, rising inflation has caused a sharp increase in the rebuild and construction costs which could leave a large number of homeowners underinsured. The rebuild costs are skyrocketing due to inflation, and that could put many homeowners in trouble. The costs of lumber and building materials have increased by many folds over the last few years, and the supply chain issues caused by the pandemic have further fueled it. High labor and energy costs are some other reasons for soaring rebuild costs. In this situation, homeowners without enough coverage could find themselves underinsured if they need to rebuild their homes after a covered insurance claim.
According to the statistical data submitted by various financial forums, inflation has increased by 9.6% in 2022 alone, which has seen construction material prices reach a 40-year high. Materials index and labor costs are likely to continue to rise throughout 2022 and into 2023.
To prevent yourself from being underinsured, you must make sure that you have appropriate dwelling coverage, as that’s the only way to cope with the impacts of inflation on your home insurance policy.

What to Do to Save Yourself from Getting Underinsured

As homeowner and hazard insurance experts, we share how can save your home insurance policy from the impacts of inflation through the following ways:

  1. Some carriers will adjust for inflation by automatically increasing the dwelling coverage, which updates your dwelling coverage on the renewal of your policy to address the inflation impacts.
  2. Contact our agency for review and re-evaluation of your dwelling coverage based on current inflation and rebuild costs.
  3. Add extended or guaranteed cost coverage to your home insurance policy. Most companies offer this coverage, but larger limits may be options. Extended or Guaranteed Cost Coverage increases your dwelling coverage limit if the threat of underinsurance is looming.

Some carriers offer penalties if you do not ‘insure to value’ meaning, that you do not have the appropriate coverage at the time of a claim or loss. Insurance carrier do not allow you to share in the risk with them, meaning, you cannot intentionally underinsure your home and assume that should the worst occur, you would contribute the shortfall. These penalties are called Co-insurance clauses. To avoid ever worrying about such clauses simply insure your home for the correct amount.

Do You Want to Make Sure that You Have Enough Dwelling Coverage to Cover Your Rebuilding Costs? We Can Help You With That!

Are you concerned about your dwelling coverage and not sure if it can cover the rebuilding cost of your home? We will be happy to help you ensure that you have enough coverage to rebuild your home after a covered claim. Our agents will discuss various issues with you related to dwelling coverage and figure out the best solutions to keep it updated based on current inflation and rebuilding costs.

Social media & sharing icons powered by UltimatelySocial
Skip to content