Inflation is why some homeowners don't have enough insurance to cover a disaster: Survey
Checking a policy annually is crucial to making sure coverage is adequate and could save homeowners money
Over half of U.S. homeowners (56%) said they hadn't reviewed their home insurance policy in the last twelve months, a Policygenius survey said. (iStock)
U.S. homeowners could be at risk of not having enough home insurance coverage because most are failing to check and update their policies to account for inflation and rising costs, a recent survey said.
Over half of the homeowners surveyed (56%) said they hadn't reviewed their home insurance policy in the last year. That could expose them to the danger of not having enough insurance to rebuild their home completely if it's destroyed, according to the Policygenius survey.
Homeowner policies should be based on the home's replacement value or the cost of rebuilding, which has risen in the last year, the survey said.
Among the 44% who did check their policy, most were unsure if their home's coverage limit was enough to cover their home's entire rebuild cost. Only 9% increased coverage to account for inflation and rising costs in construction and materials.
"Our survey found that the vast majority of homeowners are not adequately prepared and that's really concerning," Pat Howard, a licensed property and casualty insurance expert at Policygenius, said in a statement. "Most people are aware of how prices have skyrocketed over the last two years, but one of the most overlooked impacts of inflation is how it has caused homes to be underinsured, which happens when a home's insurance coverage isn't high enough to pay for a full rebuild after a disaster.
"It's important to talk with your insurance provider and ensure your coverage limits are adequately adjusted each year," Howard continued.
If you have a mortgage, you're typically required to carry homeowners insurance, but you don't have to stick with any particular insurance company. If you want to save on your home insurance costs, you could shop around for the best rate. Credible can help you compare home insurance rates from top insurance carriers all in one place.
MORTGAGE RATES KEEP RISING BUT BUYERS CAN STILL FIND VALUE IN SHOPPING: FREDDIE MAC
Homeowners insurance costs have soared because of rising inflation
Rising inflation has impacted the cost of most things and home insurance is no exception. The average premium for homeowners insurance rose 12.1% from May 2021 to May 2022, according to Policygenius; the average annual increase was $134.
Part of the reason why the cost of insurance has soared is because the prices of home repairs have increased.
Home prices have also made significant gains in the last year, so the cost of replacing them has also increased. On an annual basis, home prices increased by 6.9% in December, according to the latest CoreLogic Home Price Index (HPI).
"Construction costs on single-family homes were up nearly 17% in 2022, yet our survey found that just 14% of homeowners increased their insurance limits or added coverage features to account for this," Howard said.
If you want to make sure you have enough insurance and the right coverage for your needs, you can visit Credible to check out plans, providers, and costs.
U.S. FOURTH QUARTER GDP ESTIMATE LOWERED AS CONSUMER SPENDING SLOWS
Here's why you should check your home insurance policy each year
Homeowners that actively check their policy can review if it meets their needs and that they are paying for the coverage they want. It is a first step toward lessening the impact of inflation and the rising cost of insurance.
However, homeowners should be careful not to reduce coverage to the point where they are no longer adequately covered because they could be at risk of being unable to meet the expenses or rebuilding after a disaster, according to the survey.
Many insurers offer inflation guard coverage that automatically adjusts a policy's coverage limits each year at renewal to keep up with inflation. A safeguard like this mitigates the risk that a policy will not adequately cover a disaster because of rising costs. Yet 83% of homeowners either don't have or aren't sure if their coverage includes this feature, the survey said.
Homeowners should also try shopping for the best deal. If a homeowner isn't reviewing their policy annually, they may also miss out on the opportunity to compare their coverage with the competition.
"You can often find the best deal when you purchase two or more types of insurance policies (like auto and home) through the same company thanks to special bundling discounts," Policygenius said in the survey. "This may explain why the second-largest number of homeowners (18%) considered 'a place where I can purchase other types of insurance' to be most important when shopping for a policy."
Bundling homeowners and auto insurance could be one way to find savings as costs soar. To help you find the best insurance rate for your situation, you can visit Credible to compare multiple providers at once and choose the right option for you.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.