Rising Inflation Could Mean Your Home Is Underinsured

Inflation is driving up construction costs, which might hurt homeowners. Supply chain concerns and labor shortages could leave many homes underinsured if they need to rebuild following a covered insurance claim.

Uninsured homes may have to pay out of pocket if calamity strikes. Now is the moment to make sure you have enough replacement cost insurance. This is important. Replacement cost

Replacement Cost

Replacement cost calculators help insurers assess how much dwelling coverage is needed. The projected replacement cost includes your home's square footage, construction materials, and year built.

You can estimate your home's replacement cost yourself. Multiply your home's square footage by the local price per square foot. HomeAdvisor estimates $100-$200 per square foot.

You can also hire a contractor to submit a building estimate or have an independent insurance agency collect various homeowners insurance quotations.

Check your policy's declaration page to verify if your personal property is covered by replacement cost or actual cash value. Replacement cost coverage pays to restore or replace your home and belongings without factoring in depreciation. Your insurance company will reconstruct your home to its pre-claim condition and replace your personal property with new products, such as a new laptop, despite its reduced worth.

Actual cash value accounts for depreciation and means paying the difference between what your policy covers and what it costs to replace your belongings. If your sofa is damaged in a covered fire, your insurer will only pay for its original value, not its replacement cost.

Consider Replacement Cost Insurance

You can estimate the cost of rebuilding your home now, but future construction prices are harder to anticipate. A devastating storm can increase rebuilding costs overnight.

Extended replacement cost coverage can be added to a home insurance policy. This coverage will pay a percentage over your dwelling coverage limit if that amount isn't enough to completely rebuild. Your insurer will rebuild your home for up to $125,000 if your dwelling coverage is $100,000 and you have 25% extended replacement cost coverage.

Consider guaranteed replacement cost if you want your insurance to cover the total cost to rebuild your home, independent of construction expenses.

Guaranteed replacement costs more. Not all insurance providers offer it, and older homes may not be covered.

Other Coverage Choices

Many home insurance policies include an inflation guard to prevent underinsurance. An inflation guard automatically raises your coverage limits when your policy is renewed.

Check your older home's policy for ordinance or statute coverage. This coverage pays to reconstruct current building codes if a covered claim occurs. Even if you have replacement cost coverage, you may have to pay out of pocket for building code work without it.

Talk to your insurance provider or agent if you're worried about being underinsured. They can explain what's covered and what's not. Keep them informed of modifications or renovations so they can enhance your coverage limits.