Inflation Can Impact the Coverage You Need to Rebuild Your Home

As inflation continues to rage, it could impact the amount of insurance coverage you need to carry to make sure you can rebuild your home if it is damaged or destroyed by a covered peril. According to a report from CoreLogic, the cost of building new houses is skyrocketing due to higher material and lumber prices as well as a labor shortage. 

As inflation and supply chain issues push up rebuilding costs, it is important to review your insurance coverage to make sure you have enough coverage to rebuild your home if it is destroyed. 

Following are a few tips to make sure your home is fully protected:

Verify you have replacement cost coverage

While most homeowner policies are written as replacement value, some insurers may still use an actual cash value policy (ACV) and it is important to understand the difference. 

An ACV will take deprecation into consideration when valuing your home’s structure and your personal possessions. This means that your 12-year-old roof and 10-year-old TV will be practically worthless according to your insurance company and your claim check will be much smaller, leaving you a big chunk to kick in when it’s time to repair or rebuild your home and replace your possessions.

Replacement value coverage will replace your roof and TV with brand new ones of similar quality, regardless of how old they were when you made the claim. While replacement coverage is slightly more expensive, it can be a financial lifesaver if you must make a major claim on your policy. 

Review your coverage levels

As inflation and other factors push up the cost to rebuild a home, you may need to review and adjust your coverage levels to make sure you are carrying enough coverage to fully rebuild your home. Here are a few ways to make sure your coverage levels are appropriate:

• Insurer appraisal estimate: Your insurance company, or any insurer you are considering will be happy to determine the appropriate coverage levels for your home. They use information from their own databases as well as third party info to determine how much it would cost to rebuild your home. This is usually the easiest and cheapest way to get your coverage levels.
• Coverage cost calculators: Many insurance companies and insurance related websites have home replacement cost calculators on their website that can help you estimate the amount of coverage you need for your home. While these can be a good start, you should consult with an insurance agent to get a more accurate estimate.
• In-person estimate:  It is possible to pay a contractor or appraiser to come out to your home to give you an estimate on the cost to rebuild or repair your home. This is an excellent way to get an accurate estimate, but you will have to cover the cost yourself.
• Do it yourself: You can do an estimate yourself but unless you have industry experience this is probably the least accurate method. You can simply multiple the square footage of your hone by local rebuilding costs. You can often get your local rebuilding costs by contacting an insurance agent or local contractor.

Consider adding inflation guard to your policy

Many homeowner insurance companies offer an inflation guard endorsement or rider which is often called guaranteed replacement coverage that is designed to automatically adjust your coverage levels to account for inflation. These riders may cover up to 125% of the cost to rebuild your home so you are fully covered. While pricing can vary, expect to pay at least an additional $50 a year for this coverage. Get a homeowners insurance quote today and add in your guaranteed replacement cost coverage rider now!