We’re in the midst of hurricane season for 2018; we have a named Hurricane out in the Atlantic right now. Something to consider is how much the construction industry can impact the insurance industry when there’s a catastrophic event. While it seems like an unlikely pair to be in the same sentence, they are very much pairs when it comes to your insurance and how insurance is affected by the cost of repairs after a disaster.
Most homeowners policies have built in “inflation guards” that are percentage based. It automatically increases your coverage every year to keep up with the cost of construction. Keep in mind though, not all carriers automatically include this coverage. So when you go a long time without anything major, the inflation guards may seem pointless; we recommend doing a review every 3 years of the coverage level because of that. So what happens if we have a catastrophic event? Well supply and demand happen and the cost goes WAAAAAY up. So it’s important to review that coverage level on your homeowners policy to make sure it’s in line for rebuild cost. What may be sufficient during regular times may not be sufficient after a major disaster.
So what are some things to consider before, during, or after a major disaster?
Remember that rebuild cost is separate to market value. What a property will sell for has zero do to with the cost to rebuild or repair a home. Insurance doesn’t look at location (ie: land) when it comes to rebuild cost. Location is always there regardless.
The cost of materials and labor will increase substantially. There are two safeguards you can include in your policy and a few that are mostly included at no extra cost to you: inflation guard, extended replacement cost endorsement. Inflation guard as previously stated for MOST carriers it is automatically built in, but not every carrier does that. However, you can always have it included whether is automatic or a la carte. The other safe guard is extended replacement cost on the dwelling. Typically it extends an additional coverage of 20%-25% over the dwelling insured amount. This may or may not be automatically included with your carrier. If you have an enhanced homeowners insurance package it’s likely it’s already on there, but if you have a basic policy, it would need to be added for the coverage to apply. So what does it do exactly? Well if at time of loss the current dwelling amount is not enough to rebuild the home back to how it was before a loss, the endorsement kicks in giving you an additional buffer of coverage. It’s not a gimme endorsement, it will ONLY kick in if the dwelling limit is not enough.
It’s also important to review your coverage limits when you make updates, upgrades, and general improvements to your home. These things can change the value of what it costs to rebuild your home. Agents are not going to know you did those things to your home, so keep the line of communication open.
The goal is to always be proactively before something happens; to make sure you are properly covering yourself before that happens.