Ing + McKee

Navigating Inflation: How It Affects Your Home Insurance

February 28, 2024

The Impact of Inflation on Home Insurance

When it comes to protecting your home, inflation plays a crucial role in two major coverages:

1. Rebuilding Costs

Imagine you’ve insured your home for $300,000. You carefully selected this coverage amount, perhaps with the assistance of an agent or broker. Nowadays, sophisticated software calculates this value based on detailed information about your home. Ideally, your insured value should match the cost to rebuild your home from scratch.

But what if inflation suddenly drives up rebuilding costs by 10% or more in a single year? Where does that extra $30,000 come from if you experience a total loss?

In this scenario, your home may be underinsured. To avoid this situation, many insurers recommend an annual insurance review. Here are some strategies to better protect your home:

  • Inflation Guard Options:
    • Some insurers offer an option called “inflation guard” (or a similar name). This feature automatically adjusts your coverage amount in response to inflation. It ensures that your coverage keeps pace with rising costs.
  • Extended Replacement Cost Coverage:
    • While marketing names may vary, extended replacement cost coverage allows your policy’s coverage to expand by a certain percentage if needed. For instance, your policy might cover up to 125% of your home’s insured value.
    • These options are typically available as add-ons. Consult your agent or broker to see if your insurer provides them or if there are other ways to safeguard against inflation.
2. Personal Property Coverage

Don’t forget about your personal belongings! Inflation impacts the value of your possessions as well. Some policies set a limit on personal property coverage. If inflation drives up the replacement cost of your belongings, you could find yourself underinsured.

As inflation continues to shape our financial landscape, it’s essential to stay informed about its effects on home insurance. Regular reviews, inflation guard options, and extended replacement cost coverage can help ensure that your policy remains aligned with your needs.

Remember, your home is more than just a structure—it’s where memories are made. Protect it wisely!

If you have any further questions or need personalized advice, feel free to reach out to our team at Ing & McKee Insurance. We’re here to assist you in safeguarding what matters most.

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