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Why Increases in Inflation Might Mean that Your House is Underinsured

October 24, 2022/in News

Reviewing “Rising Inflation Can Mean Your Home Is Underinsured”

It’s no secret that inflation has been on the rise lately. In fact, it’s been increasing at a steady rate for the last few years. This might have you wondering if your home insurance policy is still adequate. If your policy was purchased when inflation rates were lower, then it’s likely that your coverage is now worth less than it was before.

With the inflation rate rising, that means that the cost of rebuilding a home after an insured event will also rise. Homeowners need to be aware of this and make sure that their home insurance policy provides adequate coverage.

Don’t worry, though! According to a recent article entitled, “Rising Inflation Can Mean Your Home Is Underinsured” from Syracuse.com, there are a few things you can do to make sure that your home is properly insured despite inflation.

One way to do this is to purchase extended or guaranteed replacement cost coverage, which will pay for more of the cost of rebuilding in the event that inflation has raised prices.

Homeowners should also check their policy for inflation guard coverage, which will automatically raise coverage limits to account for inflation. Finally, if homeowners are worried about being underinsured, they should talk to their insurance company or agent to get a better understanding of their policy and what it covers.

By taking these steps, homeowners can be sure that they are adequately protected in the event that their home is damaged or destroyed.

Interested in learning more? Read on for the full article.

Rising Inflation Could Mean Your Home Is Underinsured

By Ben Moore | NerdWallet

The cost of home construction is skyrocketing due to inflation, and this could spell trouble for homeowners. Increases in the cost of lumber and other building materials, in conjunction with continued supply chain issues and labor shortages, could leave many homeowners underinsured if they need to rebuild after a covered insurance claim.

Should disaster strike, homeowners without enough coverage could find themselves digging into their wallets to cover the shortfall. Now is the time to be certain you have enough insurance to pay the cost of what it would take to rebuild your home, also known as replacement cost. Here’s what you need to know.

Know your home’s replacement cost

Insurers use replacement cost calculators to determine how much dwelling coverage is needed to rebuild your home. Information about your home, like its square footage, construction materials and the year it was built, are all incorporated into the estimated replacement cost.

You can also take steps to determine your home’s replacement cost on your own. One method involves multiplying your home’s square footage by the current cost of construction per square foot in your area, said Alan Himmel, a public insurance adjuster in Florida, by email. “You can get an idea of per square foot building costs by calling the builders association in your area, an insurance agent, or even … contractors.” Most estimates will range from $100 to $200 per square foot, according to HomeAdvisor.

You can also hire a contractor to provide a construction estimate, or have an independent insurance agency pull multiple homeowners insurance quotes to get a sense of what each insurer believes it will cost to rebuild your home.

Be sure to check the declaration page of your policy to see if you’re covered by replacement cost or actual cash value, especially when it comes to your personal property. Replacement cost coverage pays to repair your home or replace your belongings up to your coverage limits, without factoring in depreciation, or the loss of value over time. This means that your insurance company will pay to rebuild your home to the condition it was in before the claim, plus replace your personal property with new items, like paying for a new laptop regardless of the depreciated value of the lost one.

Meanwhile, actual cash value does account for depreciation and will likely mean having to pay the difference between what your policy covers and how much it costs to fully replace your belongings. For example, if your sofa is lost in a covered fire, your insurer will only pay for what the sofa was worth when it was destroyed, not the amount it would cost to replace it with a brand new one.

Consider extended or guaranteed replacement cost coverage

Extended replacement cost coverage can be added to a home insurance policy to help offset such uncertainties. This coverage will pay a percentage over your dwelling coverage limit if that amount isn’t enough to completely rebuild. For example, if your policy’s dwelling coverage is $100,000 and you have 25% extended replacement cost coverage, your insurer will pay to rebuild your home up to $125,000.

If you want full assurance that your insurer will cover the entire cost to rebuild your home, regardless of how much construction costs increase, consider guaranteed replacement cost. “The most confident I ever am when I sell a policy is when the client has a guaranteed replacement cost endorsement,” says Peter Conte, an independent insurance agent in New York City. “They can sleep better because, come time for a claim, they know they’re getting their house back.”

Guaranteed replacement coverage typically comes with a higher premium. It may not be available from all insurance companies, and it may not cover older homes.

Check for other coverage options

Many home insurance policies come with an inflation guard, which can offset the possibility of being underinsured due to expected inflation increases. An inflation guard will automatically raise your coverage limits to account for inflation when your policy is renewed.

Your premium may rise due to the inflation guard, but don’t lower your coverage limits just to save on home insurance. “The inflation guard is actually there to help you stay in line with the inflation rate of the U.S. dollar,” says Conte.

If you live in an older home, check your policy for ordinance or law coverage. In the event of a covered claim, this coverage will pay the cost to meet current building codes when rebuilding. Without it, you’ll likely need to pay out of pocket for any work done to abide by building codes, even if you have guaranteed replacement cost coverage.

If you’re still worried about being underinsured, talk to your insurance company or agent, as they’re best equipped to break down your policy, including what’s covered and what’s not. Be sure to keep them informed of any changes you make to your home, such as upgrades or renovations, so they can increase your coverage limits accordingly.

Additional Insured vs. Loss Payee: What’s the Difference?

October 9, 2022/in General Business Insurance, News

There are a lot of terminologies to keep track of in the commercial insurance world—two of them being additional insured and loss payee.

While additional insureds and loss payees are endorsements that extend insurance coverage to a third party, there are key differences in the scope of coverage provided in each.

Below, we’ll discuss the difference between an additional insured vs. a loss payee.

Additional Insured

An additional insured is a third party—either an individual or business entity—who is added to an insurance policy at the request of the named insured because they have a liability exposure in the relationship.

Typically, an additional insured would be someone who is working with the named insured on a project. For example:

A business partner
Contractor

Insureon provides a great example: Say “the owner of an office building hires a janitorial company to clean its premises. If a visitor gets injured after tripping on a box the owner left in a hallway, the janitorial firm could be exposed to litigation.”

Therefore, “to protect itself, the janitorial company would ask the property owner to list it as an additional insured on the owner’s general liability insurance or business owner’s policy (BOP). That way, if the injured visitor sues the janitorial services company for negligence, the building owner’s insurance policy will defend the company.”

When listed as additional insured, the party is then protected under the terms of the policy just as the named insured.

Loss Payee

A loss payee, on the other hand, is a third party who is entitled to receive payment from an insurance policy in the event of a loss.

The loss payee is typically a lender (i.e. bank, mortgage company, the lender who financed the purchase of a piece of equipment insured under the policy) who has a financial interest in the property that is insured under the policy.

If that property is damaged or destroyed, the loss payee will receive compensation from the insurance policy.

Sound a little complex? Here’s a great example from Embroker:

You own a pizza restaurant (yum!) To make your delicious pizzas, you’ve rented “your pizza ovens from another company. If you add that company to your commercial property policy as a loss payee, both you and that company could receive payments if a fire breaks out in the restaurant and damages… the rented ovens.”

Why do both parties receive payments? “Because both have insured interest in the property that was affected.” It’s important to note, however, that the loss payee has first rights on insurance claim payments rather than the named insured.

A loss payee is added to a policy via a “loss payable clause,” which is typically added to a commercial auto or a commercial property insurance policy.

Key Differences: Additional Insured vs. Loss Payee

While additional insureds and loss payees are both parties who are protected under an insurance policy, the scope of coverage that each provides is quite different.

The key difference between an additional insured and a loss payee is that additional insureds receive liability protection whereas loss payees receive property damage coverage.

Additional insureds are protected in the same way as the named insured, while loss payees are only entitled to receive payment in the event of a loss.

Moreover, additional insureds are typically added to a policy at the request of the named insured, while loss payees are typically lenders who have a financial interest in the property that is insured under the policy.

When deciding whether to add an additional insured or loss payee to your policy, it’s important to understand the difference between the two so that you can choose the endorsement that properly protects your interests.

Learn More

In any project, it’s important to make sure you have the proper insurance to protect yourself and all parties involved.

A Certificate of Insurance (COI) gives a summary of what coverages someone has, whether it be general liability, workers’ compensation, or property. A COI can also include a description of coverages that might be there or attached; such as additional insured status or waivers of subrogation.

Read on for more on what you need to know about certificates of insurance.

The Manufacturing Industry and the Supply Chain Crisis

September 11, 2022/in News

The supply chain crisis continues to have a massive impact on businesses in nearly every industry. As you might guess, the manufacturing industry has experienced this impact the most.

So, what can manufacturing businesses do to help combat the effects of supply chain issues?

What Is Causing Supply Chain Disruptions?

There are a variety of factors that have led to the supply chain crisis that we’ve experienced over the last few months.

Some of these factors include:

The COVID-19 Pandemic

Though it feels like we’ve surpassed the COVID-related closures, we’re still seeing the effects of business closures due to employees being unable to go to the office in person.

Port Backlogs

Everyone remembers seeing the Long Beach port overrun with ships containing products that were unable to get unloaded. With a shortage of workers to move the ships along, backlogs occurred, and as a result, shipping prices increased.

Cyber Risk

As companies move to a more digital-focused environment, critical data is being shared in a far-reaching global supply chain. With the increase in digital usage comes an increased risk of cybersecurity breaches.

These breaches can cause damage to your business’s operations, finances, and reputation.

Driver Shortage

In 2021, the American Trucking Association stated that the truck driver shortage could hit historical lows of 80,0000 unfilled truck driving jobs in the US. This shortage led to even more backlogged ports, as products cannot be moved.

Production Issues

The increased demand for specific products alongside the factory closures in 2020 and 2021 has caused production issues across various industries.

Natural Disasters

Lastly, the effects of natural disasters always affect the supply chain. Whether it’s a hurricane, flood, blizzard, fire, or any other natural disaster, they may be responsible for postponed deliveries, closed ports, and canceled cargo shipments.

How Can You Reduce the Effects of the Supply Chain Crisis in Your Manufacturing Business?

It’s important to understand how you might be able to mitigate the effects of the supply chain crisis. Below is a shorthand list of what your manufacturing business can do.

Diversify Your Supplier Base

Using one sole supplier for all your business needs can easily cause massive disruption in your manufacturing business’ entire supply chain. Having diversified suppliers allows for the disbursement of risk and reduces the impact of potential disruption.

Ensure You Have Backup Suppliers and Vendors

Similar to a diversified supplier base, you can also combat supply chain issues by ensuring you have backup suppliers and vendors. If, for whatever reason, your supplier is unable to complete an order, you’ll have a backup supplier in place to cover the disruption.

Work Toward End-to-End Visibility

Visibility into the supply chain operational stages allows you to forecast where problems may arise while also tracking progress and ensuring a quick response to issues that might come about.

Have a Risk Management Plan in Place

Risk management is one of the most effective ways to combat any issues within your business. This plan allows you to identify and assess current and potential risks that could disrupt business operations. Procedures and responses can be prepared in this plan, as well as processes to adapt to disruptions within your business.

Invest in Cybersecurity Insurance and Protocols

Investing in cybersecurity protocols helps mitigate the common risks that affect supply chain processes, including breaches, data leaks, and malware attacks.

Alongside the additional protocols and cybersecurity measures, it’s important to invest in a separate cybersecurity policy to ensure your business is protected in the event of an attack.

Review your Insurance Coverage

There are a few insurance policies that can help reduce the impact of supply chain disruptions on your business. Some of these include:

Contingent business interruption insurance
Extra expense coverage
Supply chain Insurance
Natural disaster insurance, and
Production process problems

As a manufacturing company, the supply chain crisis is likely one of the most important issues you may face.

On top of that, there are insurance requirements your business needs to follow to remain in business. Take a look at our article “Complying with Insurance Requirements: Construction, Manufacturing, Tech Start-Ups” to guide you through this process.