Submitted by Melanie Bakala State Farm

A stop in at the gas station or local grocery store can be a very uncomfortable reminder that inflation is alive and well. According to US Bureau of Labor Statistics, consumer prices for all items rose 7.0 percent by the end of 2021, the largest December to December percent change since 1981.*

But what’s that have to do with homeowners and insurance? Inflation and increasing economic pressures also impact the cost to rebuild your home should disaster strike. The good news is that homeowners with adequate insurance coverage can rest easy knowing they can rebuild and recover if the unexpected does happen.

State Farm Agent Melanie Bakala encourages homeowners to not wait until after disaster strikes to realize that inflation and increasing economic pressures have impacted the cost to rebuild your home.

Bakala encourages homeowners to take two steps now to make sure their insurance policy provides for adequate coverage to rebuild and restore their home and furnishings: an Annual Insurance Check and a Home Inventory.

Step 1: Annual Insurance Check 

Bakala strongly encourages homeowners to have an annual insurance conversation with their insurance. Agents can assist customers with estimating the replacement cost of their home during these annual reviews.

“While the amount of coverage ultimately is the customer’s choice, we are here to help customers understand their options in selecting the appropriate coverage to rebuild,” Bakala said.  This also is a good time to make sure you have informed your agent about any changes to your home that may impact your insurance coverage needs, such as an addition or remodeling as they occur. 

Questions for homeowners to consider during their Annual Insurance Check:

  • Do I have enough insurance to cover the cost to rebuild and replace my home?
    • It’s critical to understand that market value​ is different than the replacement cost to rebuild your home. Market value is the amount a buyer would pay for a home, including the land, regardless of how much it would cost to rebuild the home. Replacement cost, for this purpose, is the rebuilding cost necessary to replace your entire home.
    • Bakala recommends that you purchase an amount of coverage at least equal to the estimated replacement cost. But the choice is yours. Since it is impossible to predict today what the exact cost will be to replace your home in the future, it’s important to have enough coverage to account for unforeseen circumstances.
  • How can I figure out the replacement cost of my home?
    • Ask if a replacement cost estimate is available when you have the home appraised or consult with your local builders association or a reputable builder for an estimate.
    • Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost of your home. Estimates from these sources should reflect your home’s features. When you upgrade or improve your home, you may increase your home’s estimated replacement cost.
    • Replacement cost estimates are influenced by supply of labor, demand for labor, and the cost of construction materials. Keeping up with the current market conditions in your area and changing your home insurance coverage amount accordingly, will help you maintain coverage at least equal to 100 percent of the estimated replacement cost coverage for your home.

Step 2: Home Inventory 

We often don’t realize the amount of belongings we accumulate over time, in every nook and cranny of our homes. That’s why homeowners are encouraged to conduct a home and personal property inventory prior to a catastrophe or unexpected damage. “It’s a good idea to update your Home Inventory on an annual basis at the same time of your Annual Insurance Check-up,” said Bakala  “ A Home Inventory is an excellent way to make sure you can replace things in your home like furniture, home essentials and clothing your home should the unexpected occur.”

Questions on why and how you should create a Home Inventory.

  • Why do I need an inventory of the personal property in my home or apartment?
    •  A home inventory is an excellent way to help make home and renters insurance coverage decisions and expedite the insurance claims process after theft, damage or loss. This record of your insurable assets will help you in the settlement of a covered loss or claim, and determine the right amount of insurance coverage you need.
    • Start making a list and compiling any documents, pictures or videos you still have access to of your personal property. There are many virtual tools to help with a home inventory.
  • How do I create a home inventory?
    • The first step is to decide on what type of inventory would be easiest for you to create. A home inventory can be as simple as a list of all your possessions or a visual record for each item, but an effective home inventory should include both for added security. Today, there are even digital tools to help simplify the process of maintaining the list.
    • A written inventory: A comprehensive home inventory list catalogs your belongings and should include the item description (make, model and serial number, if applicable), value and purchase date. You can create your own list using a spreadsheet or fill out a home inventory checklist that’s ready to go.
    • A digital inventory: If you have an iPhone or Android phone, there are apps that can be downloaded to your phone, some of which are free. These mobile home inventory apps allow you to record a photograph of the item along with the description, value and purchase date.
    • This link provides additional tips for creating a Home Inventory.

Consumer Price Index: 2021 in review : The Economics Daily: U.S. Bureau of Labor Statistics (bls.gov)

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