Rising construction costs aren’t just a problem if you’re hoping to build or remodel a home. In fact, in the event of a housefire, wildfire, or other catastrophic damage to your home, rising inflation could mean a discrepancy in your calculated home insurance replacement cost and how much it would actually cost to replace your home in the event of a total loss. In other words, you could be underinsured and not realize it until it’s too late. In today’s blog, the insurance experts at Grange Insurance Association discuss why it may be time to revisit your home replacement cost.
A home’s replacement cost is the estimated cost of rebuilding the home in the event of a total loss. While many people confuse this number with the market value of the home, a home’s replacement cost should reflect current construction costs, square footage, home features, and material costs rather than the amount you could get if you sold your home in the current market.
Insurance to value is the relationship between your Dwelling coverage and the total dollar amount needed to rebuild your home after a total loss. At Grange Insurance Association, we’ve added automatic inflation and construction cost index factors to our policies over the years to try to make sure these numbers are aligned. But with the rate of inflation, as well as continued supply chain issues and labor shortages, these adjustments may not be enough to bring your replacement cost to a realistic level. That means that some percentage of policyholders may not be insured to value or have an adequate replacement cost, rendering them underinsured. And in the event of a total loss, they’d end up having to pay the difference out-of-pocket.
Re-estimating the replacement cost of your home can be done via an insurer appraisal, an online replacement cost calculator, a professional appraiser, or through your own estimates. That said, the replacement value of a home for insurance purposes considers a wide range of factors, therefore; we highly recommend you work with your independent agent to determine the most appropriate limit of coverage.
Need help adjusting the home replacement cost coverage in your Homeowners insurance policy? Contact your local independent insurance agent today. In the meantime, check out our insurance blog, where we cover everything from scheduled vs. unscheduled property coverage to loss of use coverage.
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