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  • Writer's pictureBob Newland

Has Inflation Caused You To Be Underinsured?

Did you know?

An American Property Casualty Insurance Association (APCIA) survey shows only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs. The survey also revealed that 64% of homeowners are unsure whether their policy limits are based on the market value or the cost to rebuild. See below for other stats and suggestions that resulted from the APCIA survey.

In these troubling times of high inflation and increased construction costs, it’s important to make sure your home, your largest investment in many cases, is properly insured.

Contact McPherson & Newland Insurance at (908) 782-3710 and allow us to run a replacement cost estimation to make sure you have adequate insurance to rebuild should that fire occur. Even if we have done this calculation in the past, with the recent inflation now may be a good time to have us run it again!

Key findings of the APCIA survey include:

  • There is a significant knowledge gap over whether insurance covers the cost to rebuild or the market value of the home. Sixty-four percent of insured homeowners indicated they are not sure or believe their homeowners coverage limits are based on the real estate market value of their home rather than the rebuilding cost. Most residential property insurance policies cover the cost of rebuilding a home, with recommended coverage limits typically based on estimated reconstruction costs for similar interior and exterior features, size, and finishes.

  • Sixty-three percent of insured homeowners say they have not added or are not sure if they have added annual inflation adjustment coverage, which automatically adjusts your policy each year to account for inflation.

  • Sixty-seven percent of insured homeowners say they have not added or are not sure if they have added extended replacement cost coverage to their policy, which increases the coverage available to rebuild your home if labor and materials costs skyrocket after a disaster.

  • Sixty-nine percent of insured homeowners say they have not added or are not sure if they have added ordinance coverage for new energy or building code upgrades, which provides additional coverage to account for higher costs associated with rebuilding to up-to-date building codes.

  • Only 20 percent of insured homeowners say they created or updated a home inventory in the event of a loss less than a year ago, and 25 percent say they have never completed a home inventory.

To keep from being surprised in the recovery process following a natural disaster, APCIA urges homeowners to talk with their agent or company about adding the following key coverage features:

  • Replacement cost coverage – pays an amount necessary to rebuild the home with construction materials of like kind and quality and replace your personal belongings, without deducting depreciation.

  • Automatic inflation guard – automatically adjusts your coverage amount at each renewal time to help keep up with rising costs; however, during periods of extreme inflation, it remains important to review coverage limits.

  • Building code/ordinance coverage – increases coverage to help comply with any new building code or green energy ordinances.

  • Extended replacement cost coverage – increases coverage available to rebuild your home when labor and material costs skyrocket after a natural disaster.

  • Additional living expense (ALE) coverage – optional higher limits may help cover hotel and food costs if a longer timeframe is needed to rebuild your home.


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