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Inflation and Your Property Insurance Coverage: How They Relate and How To Be Sure You Have Enough Coverage

Thu Mar 17th, 2022 on     Property Insurance,    

You don’t have to be an expert in economics to realize that we are in a time of significant inflation. The price of everything from the gas we put in our cars to the food we put in our bodies has increased greatly over the past year. So what bearing does inflation have on your property insurance policy? And how can you be sure you have the proper coverage in case it is needed? Our Miami insurance coverage lawyer explains. 

Understand Your Policy

Read your insurance policy, and become familiar with its terms. It will state what the obligations of the insurance company are when you suffer a loss. The amount on your policy should be what it was estimated rebuilding your home would cost when you first took out the policy. However, inflation often means that the original coverage limit amount is no longer adequate.

Rates Increases

Insurers often apply a rate of inflation increase to homeowners’ property insurance policies to make up for the shortage that exists due to inflation. Insurers typically use the Consumer Price Index to measure how much of an increase is warranted due to inflation. While it may be upsetting at first to see an increase in the amount of premiums you are required to pay, it is important to understand the reason for this. If for some reason your home was totally destroyed, inflation has caused the amount of money needed to rebuild that same home to increase. Costs increases are due to:

  • Labor Shortage: The current labor shortage affects virtually every type of business, and the housing industry is no different. In order to attract and retain workers to build homes, contractors are having to increase their pay. This increase is passed on to anyone purchasing a new home, which means the cost to replace your house increases significantly.  
  • Material Shortage & Cost: It is hard for builders to obtain the materials they need to build, and they cost considerably more than they did even a few short years ago. 

This is why your premium has increased. It is so that if you lose your home you have adequate insurance coverage to rebuild it. 

Inflation Guard Insurance

There are other avenues to ensuring that your property has adequate coverage. One of the ways to safeguard your property’s value is to purchase Inflation Guard Insurance. It is typically offered by insurers as part of the main insurance policy or as an endorsement. In a nutshell, Inflation Guard Insurance automatically increases annually to help make up the difference in the amount of coverage and the actual amount of property replacement. To compensate for the additional coverage, your premiums will increase. Typical inflation adjustments range from 2% to 4%. 

It is important to read your policy or endorsement so that you are clear on exactly what Inflation Guard Insurance applies to. For example, some insurers only apply this additional coverage to the actual dwelling, while others apply it to:

  • Your dwelling, or home
  • Your possessions located inside of the dwelling
  • Other structures besides your home, such as a detached garage, and its contents
  • Living expenses incurred if you are unable to live in your home

If you have questions about Inflation Guard Insurance, a Miami insurance coverage lawyer at our firm is here to help.

Extended Replacement Cost Coverage

Extended Replacement Cost Coverage is another option you may want to consider to ensure you will receive full replacement value if your home is destroyed. This is typically an optional endorsement wherein you are able to add additional coverage in either 10%, 25%, or 50% of the policy limit amount to the cost of reconstruction. The percentage amount you are allowed to add depends on the type of insurance policy you have. Also, not all insurance policies have Extended Replacement Cost Coverage as an optional endorsement. 

Following is an example of how Extended Replacement Cost Coverage works. Let’s say your house burns down, and the cost to rebuild is $260,000. You find out your policy limit on your insurance policy is $200,000. If you have a 25% Extended Replacement Cost Coverage endorsement, you would be able to recover an additional $50,000 to help pay for your home to be rebuilt. You would still be out of pocket for the additional $10,000.

Guaranteed Replacement Cost Coverage

Guaranteed Replacement Cost Coverage is a more thorough and comprehensive option to provide extra coverage to pay for whatever is needed to repair or replace your home. There is no cap to how much Guaranteed Replacement Cost Coverage will pay. The drawback of this coverage is its cost and the fact that it may or may not be available for your type of home insurance policy.

Building Ordinance or Law Coverage

Building Ordinance or Law Coverage is another optional endorsement to help with the cost of repairing or replacing your home. Unlike the other types of additional coverages available, Building Ordinance or Law Coverage helps pay for any costs or expenses incurred due to current building ordinances and codes. Often, they will have changes since your home was originally built. A Miami insurance coverage lawyer can help clarify what ordinances or laws have changed where you live.

Speak With Your Insurer

If you have questions about your policy, call your insurer and ask for clarification. Ask that they send you documentation of anything important you discuss during the call. Inquire as to whether or not your policy has Inflation Guard Insurance, and if not, how much it would cost to purchase and what it covers. It would also be in your best interest to inquire about Extended Replacement Cost Insurance, Guaranteed Replacement Cost Coverage, and Building Ordinance or Law Coverage. 

Connect With A Miami Insurance Coverage Lawyer at Ver Ploeg & Marino

If you have questions about your property insurance coverage, connect with a Miami insurance coverage lawyer at our firm. We are experienced lawyers that concentrate our practice on helping policyholders in disputes with their insurance companies. You may schedule a consultation via our contact page.

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