Home Insurance and Replacement Cost
Have you taken an in-depth look into your home insurance coverage recently?
If it has been a few years since dusting off your policy and investigating, you may want to do so now. Recently, inflation has caused construction costs to increase which could leave many homeowners without adequate insurance coverage.
What is your home’s replacement cost?
First, let us begin by defining replacement cost. A replacement cost coverage pays to repair or replace damages to your property at today’s labor and construction prices, without deducting for depreciation. This focus on “today’s labor and construction prices” is why reviewing your home insurance policies is crucial.
If you have not updated your policy in a few years, then your replacement cost will be based on outdated labor and construction prices. This could mean that, if an emergency or disaster does occur, your existing home insurance policy will not be able to cover the replacement cost.
What causes the replacement cost to increase?
Inflation rates have increased significantly during the past year. According to the U.S Bureau of Labor Statistics, there was an 8.5% increase in March, which was the largest 12-month advance since December 1981. This inflation impacts everything, from food prices to construction costs.
Supply chain shortages has caused the cost of building materials to increase, which could then increase the replacement cost of your home. There are also material shortages to consider. Waiting for the necessary tools and materials may also increase the expected timeframe of repairs.
What action should be taken?
Primarily, we recommend that you contact us if you are unsure of your current replacement cost coverage. Your policy may need to be updated in consideration of the increase in inflation and supply chain issues.