How to protect yourself with Home Insurance, with inflation driving the price of lumber
BY: ADAM HUZIEN
SENIOR INSURANCE BROKER/ FOUNDER
The current economic climate has clearly proven how real inflation can be in the United States. If you compare the price of a wide variety of goods from consumer discretionary products, building materials and even food. It is evident to see that inflation has been running its course, due to a variety of reasons. Such as shortages, supply chain issues, and even the lack of employees. Unfortunately, we have all experienced it and are probably still being affected by this current economic trend, that seems to be caused by global pandemic.
We all know this, but how can we protect ourselves with home Insurance if the price of lumber and other building materials keeps going up?
As discussed in a previous post, your homeowners insurance policy should be based on replacement cost valuation. Before the pandemic that was usually enough. However, due the current climate & circumstances. The right homeowners insurance companies/ brokerages have been recommending that homeowners, add a specific endorsement to there policy. An additional endorsement, is simply an added piece of coverage usually optional.
So What is this Additional Endorsement Called on a homeowners insurance policy?
ADDITIONAL REPLACEMENT COST COVERAGE ON COVERAGE A
(Usually gives an additional 25% of coverage based on the value of the main structure)
This is specifically designed to protect homeowners in respects to the increased cost of rebuilding a home, if the building materials and costs go up to rebuild become greater than the set limit of coverage.
Simply stated, imagine 5 years ago you purchased your homeowners insurance. Did you take in to account that in just one year, the price of lumber has increased a whopping 377%? Probably not, and no one is to blame because no body has a crystal ball to see the future. However moving forward we can make decisions based on the facts at hand to further set us up for the best situation in the future. This is why it is important and highly recommended that you speak with an insurance broker, in regards to this ADDITIONAL COVERAGE A (usually 25% of additional coverage on the main structure). This will help you hedge, against the increased prices and inflation. In case of a total loss, your benefit is tremendous in comparison the small additional price you will pay for it.
Importance of the Additional Replacement Cost
Well picture this, say the average price of a home in New Jersey is approximately $450,000 and for arguments sake say the square footage of the living space of the home is 2400 sq ft. That is about $187.50 per square foot. Now we didn't take in to account that the price of lumber increased. Do you think that the original level of coverage will be enough purchased 5 years ago? Probably not.
Wouldn't be nice to have that additional endorsement on your homeowners insurance that would give an additional 25% on your coverage A? Which will be a value of an additional $112,500 at your disposal as homeowner to replace your most valuable asset.
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