Protecting Your Home in an Inflationary Environment
Note from Richard P. Slaughter Associates: As a total wealth manager, we need to consider all elements that can impact the success of a client’s financial goals. In that effort, we partner with many service providers, such as CPAs, estate attorneys, and insurance agencies. For the following article, we reached out to Hanna Ogle with Watkins Insurance Group to share her expertise regarding protecting one of your most valuable assets in an inflationary period – your home.
The cost of homebuilding is rising, and costs are going up for both construction and repairs. This inflation is partly due to supply chain disruptions, plus increasing demand for construction materials and supplies over the past several years. Now more than ever, it’s important for homeowners to take proactive measures to protect their homes and keep repair costs down.
Rising Costs and Impact on Homeowners
Many of the increases have been significant, and much higher than average inflation occurring in the market. Consider the following from 2021:
- Lumber for framing on homes went up by 34%
- Copper (for plumbing) went up 56%
- Asphalt shingles went up 10% and may rise even higher in 2022
These increases aren’t only hitting raw materials; they also impact appliances in the home. Today, most appliances include mini-computers or other technology. Because these components are currently in short supply, some types of appliances have gone up tremendously, anywhere from 8% to 60%. Many higher-end appliances sustained even larger increases.
Proactive Ways to Reduce Risk
Check Your Coverage
The rising cost of repairs means it’s more important than ever to safeguard your home and reduce risk. When it comes to home protection, there are variations in coverage provided by your insurance policy.
- Replacement Cost: If there is a partial loss, a weather-related claim (like the roof or a kitchen fire), or a total loss (wildfire, tornado), you’re covered up to the policy limit to repair with like, kind, and quality.
- Guaranteed Replacement Cost: Not limited to the dwelling coverage amount on the policy. Home rebuilding is guaranteed, even if the cost to rebuild is more than what you insured your home for.
Generally, policies include a replacement cost coverage feature for the dwelling. Most insurance companies do not have guaranteed replacement costs. However, those that cater to higher net worth clients often do. It’s a good idea to check and see which kind of policy you have. If your plan offers replacement cost, now might be a good time to reassess how much coverage you have on your policy or consider switching to a plan with less risk and guaranteed replacement cost.
Protect Items Within Your Home
In addition to thinking about the materials that comprise your home (and need to be addressed during repairs), it’s essential to consider the things inside. Things like high-end appliances, passion collections (memorabilia), jewelry, and art should all be accounted for. This is especially salient today, as the pandemic altered art acquisition activity as people spent more time shopping from home. For instance, New York’s November 2021 auctions for art totaled 2.54 billion – the highest ever for a November auction cycle. As a result, art is appreciating rapidly, and it’s essential to ensure you have enough coverage applied to existing pieces and new acquisitions. There have also been increases in gold, precious metals, and jewels – and the same advice applies. Now is a good time to have your higher-end jewelry items appraised and adjust coverage if needed.
Use Technology to Reduce Liability
Homes are getting ‘smarter’ every day. Some of these new technological advancements provide protection, and people are utilizing new technologies not only to make their homes more comfortable, and easy to live in, but for monitoring and prevention. One example is a water leak detection system, which safeguards against experiencing a water loss in your home. When a pipe breaks or leaks it warns you, and it can even shut off the water. Devices like these are inexpensive and easy to install but prevent horrible, dramatic claims. Water-related losses are the most common claims (second only to weather-related), and some insurance policies even require these devices to be installed, especially in homes with higher rebuild value. In other cases, you can get a discount for having a system installed.
Adjusting Your Policy
If you’re looking to adjust your policy, you should ask two key questions: ‘What does my policy cover?’ and ‘Do I have enough coverage?’ As replacement costs go up and valuables appreciate, it’s important to ensure you’ve bought the proper amount of home insurance. An agent can talk it through, and help you analyze the features and quality of your home. Then, they can prepare a new estimate of how much rebuilding would cost. This estimate helps inform adjustments to coverage. It’s also essential to check the endorsement section of your policy to determine if you’re covered for replacement cost or guaranteed replacement cost. If you’re not sure, talk to your agent. Then, you can determine if you should select a company that provides guaranteed replacement costs. Not all do, but some are still able to add additional coverage or move you to another type of policy.