Does inflation affect your homeowners insurance
policy and rate?
You may have noticed recently that the dollar in your pocket doesn't seem to stretch as far as it
used to. What does this mean for your replacement cost home insurance coverage? Well, think
of your replacement cost insurance coverage as dollars in your pocket, which when needed
(due to a claim) you can reach in and use to purchase items or to help you rebuild your home
and have money to pay workers who are needed for the labor.
Luckily, homeowners insurance policies often times come with a product called inflation guard,
which automatically adjusts your coverage higher when your policy renews, so you are not left
with a situation where you are underinsured. Florida Allstar Public Adjusting of Broward County
recently contributed to a Marketwatch article and Alan Himmel discusses how inflation affects
homeowner's insurance policies and how “inflation guard” protects you as prices of material and
labor rises. This is good because you generally don't have to think or worry about your
coverages, but its bad because it typically causes your rate to increase. Not only will you be in
a predicament if there is not enough coverage, but your mortgage company who also has an
interest in your property will want to make sure there is enough funds to repair the property
properly.
Do You Have Enough Coverage?
So, how do you know when your policy has enough replacement cost coverage? The simplest
way to calculate replacement cost coverage needed is to multiply the total square feet of your
home and multiply it by the cost of construction per square foot in your area. You can get an
idea of per square foot building costs by calling the builders association in your area, an
insurance agent, or even call contractors. Remember, you will be looking for costs to build back
what you have. In other words, if you have ceramic tile on your floors, you will want to get a
cost to put the same kind and quality ceramic floor back down, not marble since marble is an
upgrade