Has Inflation Affected your Insurance Coverage?
October 31, 2022
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It is amazing how fast 2022 has gone by, as here we are already in the final quarter of the year. The economy both locally and nationally has certainly provided plenty of conversation material. We have talked about inflation in previous months. Upon finding some articles that have pointed out the cost of building, we thought this month might be a good time to remind everyone to review their insurance coverage as it relates to your business assets as well as your residence. In a worst-case scenario, the increased cost to build or rebuild could potentially have a large financial impact if not addressed.
How Rising Costs Can Affect Insurance Coverage
Lee Potts, Vice President/Senior Credit Officer
We have all heard plenty in the past couple years about the rise in lumber prices and other building materials. We have heard about supply chain issues in obtaining certain components of building a house or business/farm building as well as the same issues with equipment and vehicles.
These cost increases have come from increases in demand such as pandemic-induced plans to renovate, low interest rates promoting more purchases, new builds, and remodels, and the list goes on. These increases in demand have been met with supply issues also.
Property/casualty insurance is not our area of expertise as bankers. Our area of expertise is ensuring you as a business owner and/or a homeowner are not taking on undue financial risk in the event of a property loss. After all, you worked very hard to own your home and/or build your business. Unfortunately, you know all too well that a single disaster could destroy various assets in a very short time. Therefore, it makes sense to think about insurance coverage logically now to prevent surprises in the event of such a disaster.
- Even with insurance coverage based on replacement cost, the estimate for replacement of certain assets in the event of loss may or may not be adequate compared to what the actual cost may be to replace those assets at the current time. We challenge you to ask yourself what your risk tolerance might be in the event of there not being enough insurance coverage in the end to fully cover the cost of replacing an asset. If the answer to that question is something that may keep you awake at night, we encourage you to take the following steps:
- Review your policy(ies): Evaluate your level of coverage relative to what it might cost to replace the assets included on the policy. Yes, increasing coverage amounts, should you choose to do so, does cost more. A conversation with your insurance agent may result in ways to keep the cost reasonable, however.
- Consider Coverage Adjustments: Building on the above point, a discussion with your insurance agent may result in suggestions such as adjusting deductibles or other options they may present.
- Communicate with Your Agent: As already mentioned, keeping in close contact with your insurance agent is the best option to ensure you have adequate insurance coverages in this current world we are living in where things cost more than we have been used to in recent years. Again, a good litmus test is to ask yourself what will help you sleep best at night when thinking about this topic.
We encourage you to contact your insurance provider soon to review your coverages and make any necessary adjustments!