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Is Your Insurance Policy Keeping Up With Inflation? 

It’s no surprise to anyone who has purchased anything from groceries to shoes to gas for a car—costs are rising. While the rate of inflation has tapered off, prices are higher than they were a year ago, and this has an impact on budgets. 

While we have seen periods of high inflation before, it has been decades since we have seen the types of increases we are seeing right now.  

The COVID-19 pandemic caused significant disruptions in supply chains and product availability, along with dramatic changes in labor markets. Demand for goods and services, on the other hand, saw less change. With demand relatively unscathed and supplies unavailable, inflationary pressure built up. 

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What does this mean for auto insurance? 

The premiums you pay for auto insurance coverage are developed using several factors. Some of those factors have to do with you: where you live, your driving record, and whether you pay your bills on time or your claims record. Other factors have to do with the vehicle you drive, such as what kind of vehicle it is and the purchase price, how that make and model will fare in a collision, how much it costs to repair, and the availability of replacement parts. 

Three of those items—purchase price, cost to repair, and parts availability—have been deeply impacted by economic factors.  

Purchase prices have gone up for both new and used vehicles, partially due to inflation and partially due to availability. The average price of a new car is up 12 percent, and the average price of a used car is up an astonishing 40 percent. 

Costs to repair have also risen dramatically because multiple issues are involved. Not only are parts used for repairs more expensive due to inflation, but labor shortages have also driven up the wage side of the equation as well. In fact, labor costs are up by more than eight percent—a key factor in the 15 percent rise in the cost to repair a vehicle. 

When the availability of parts dropped due to pandemic supply chain disruptions, everyone from service departments at dealerships to local repair shops was affected. While the supply chain problems have eased, it can still be difficult to find parts for some vehicles. 

If you are in an accident and your car needs to be repaired, you could wait longer for the job to be completed. 

But that’s not the end of the list of expenses. If your policy includes rental car coverage while your vehicle is in the shop, those costs have risen too.  

All these increases add up, making it far more expensive to repair a damaged vehicle. 

As overall repair costs have risen, your current coverage might not be enough to pay for repairs or for liability damages. Essentially, it is possible that inflationary pressures have increased prices beyond the limits of your policy. 

This combination of factors has another potentially dangerous side effect: more uninsured motorists. Even though it is against the law to drive without insurance in almost every state, when finances get tight, some people stop paying their insurance bills.  

With more uninsured and underinsured drivers on the road, having sufficient coverage and limits has never been more important. Contact your agent to discuss your coverage and policy limits to make certain you have adequate protection in place. 

What does this mean for homeowners insurance? 

Homeowners insurance is experiencing many of the same price pressures. Lingering supply chain disruptions and labor shortages affect how much it costs to repair your home. Building materials are up by 26 percent, and almost all contractors—89 percent—report that they are struggling to find qualified workers. The lack of available workers delays projects and drives up wages. 

Although some of these problems have eased somewhat, other factors such as an ongoing shortage of affordable housing and rising interest rates are impacting the housing market and can have an extended effect on building and materials costs if damaged by a covered event and the furniture in your living room, home office, and bedroom are all destroyed, your homeowners insurance is supposed to help offset the financial burden of replacing things and getting your life back to normal. If you have actual cash value coverage, you’d receive a check for the depreciated value of those items, minus your deductible, which might end up being only a fraction of what it will cost you to replace your property. 

For replacement cost coverage, the challenge you might face is the dollar limit of your coverage. Since everything is more expensive, you will want to make sure that the policy limits take that into consideration.  

Policy limits are something to check across all aspects of your homeowners insurance, including sub-limits. You’ll find these amounts in things such as riders, like valuable personal property coverage for jewelry and electronics, or additional coverage you may have added such as sewers and drains, or service line coverage.  

When you purchased your homeowners insurance policy, the dollar limits were selected to match the circumstances and economic conditions at that point in time. Those conditions have changed, so your policy limits might need to be increased to ensure you are covered. 

What does this mean for you? 

When it costs more to fix a car or repair a damaged home, these inflationary increases might mean that you don’t have sufficient insurance coverage. 

For example, if you’re in a vehicle collision and have a newer car that needs to be repaired, you might be waiting a while for it to get fixed. Many policies have a cap on the dollar amount of rental car coverage, which means you might need to cover the extra time you need the rental car out of pocket. Talk to your  agent to see if there are any gaps in your auto insurance coverage. 

Homeowners coverage is perhaps even more important to review. With rising costs, not only is it more expensive to rebuild a home, you might also not have enough coverage to replace your personal property, like furniture, housewares, and bedding. Make sure to ask about your policy’s limits and note whether you have actual cash value or replacement cost coverage. 

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What are the next steps? 

Some regions of the country are experiencing more dramatic increases than others when it comes to repair and replacement costs for vehicles and homes, so it’s important to talk to your insurance agent to get their perspective. If you decide to get more coverage, you might want to increase your deductible to offset any rise in premiums. 

Most importantly, you can learn more by talking to the experts at Guaranteed Rate Insurance. With access to information on homeowners and vehicle insurance rates across the country, Guaranteed Rate Insurance can help you find the right coverage for everything you want to protect. Start comparing quotes online today or contact an agent to learn more.


*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply. 

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