A couple of weeks ago, I was having coffee with a retired couple in a Dallas Starbucks reviewing the home insurance quotes I’d prepared for them. They’d been referred to me by a friend who was concerned they were paying too much for home insurance. They were asking questions about the quotes we’d reviewed and the explanation I’d given for the coverage. The wife asked me one final question which was, would the home insurance premium increase next year?
This is a pretty common question I’m asked and it’s usually asked by people who’ve been with one insurance company for a very long time. The couple I met with had been with the same insurance company for the past 50 years. Change like that comes with a certain amount of trepidation and anxiety. The irony in the wife’s question is that the company they’d been with for so very long had raised rates year over year to the point where the couple felt they had to look for other options.
My answer to the wife’s question was, yes their rate will change next year, regardless of whichever insurance company I wrote their policy with today. The reason it will change is that all of the home insurance policies I write today include an “inflation protection” component within the policy.
Inflation protection simply means that the home’s insured value, what it cost to replace the home in the event of a total loss, will increase each year based on the rate of inflation. The average rate of long term inflation in the United States from 1913 to 2013 is 3.22%. If the rate of premium increase for a home insurance policy at renewal is between 3% and 5%, that signals to me the rates are stable and not increasing beyond the rate of inflation. If rates are rising at a rate faster than inflation, as they have been for the past three years, then it becomes increasingly important to review our client’s options each year.
Insurance companies did not always have an inflation protection component built within their home policies. They depended on the agent and their team to review each client’s insurance policies every one to two years and adjust them accordingly. The only issue with this is that it didn’t always happen and no agent I know wants to tell their client there is not enough insurance to cover a total loss due to a fire or tornado. Inflation protection helps protect the client from being underinsured, or having too little home insurance coverage in their policy to replace their home.
Before I changed careers 10 years ago, the home I was living in at the time had been insured by an agent I’d worked with since I moved to Dallas. It turns out the home’s insured value had not changed in the 13 years I owned the home. Over the course of that 13 years, construction costs in Dallas and across north Texas had jumped significantly. I reviewed the amount the home was insured for and found it was underinsured by about $80,000. I didn’t have enough coverage to rebuild my home if I’d experienced a total loss.
As I explained inflation protection to the wife, it was easy to see her sense of relief and understanding. She also is grateful that I have multiple options to choose from as an independent agent. Do you have a question, comment, or experience you’d like to share with me? Please share them in the comments section of our blog or on our Facebook and Google + pages. I’d love to hear from you!