Inflation could mean your house is underinsured. Here’s why

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With home construction costs continuing to soar due to issues with the supply chain, labor shortages, and worsening natural disasters, many homeowners could be left underinsured.

During periods of rapid inflation, the cost to rebuild may suddenly spike to account for higher lumber prices or a shortage of contractors. If homeowners don’t update their policy to reflect these fluctuations, they may not have enough insurance to fully rebuild their home after a disaster.

The price of materials used in home construction has increased 36% since the start of the pandemic. As we settle into what forecasters predict will be another active hurricane and wildfire season, it’s more important than ever for homeowners to review their policy and make sure they have enough coverage should disaster strike.

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In May 2022, the annualized inflation rate reached a 40-year high of 8.6%.  According to Michel Leonard, chief economist at the Insurance Information Institute, this has been driven mainly by the rising cost of capital goods , construction materials and vehicles, and escalating labor costs.

Leonard says delays in the supply chain and business cycle have limited the supply of primary construction commodities, like lumber and asphalt, which have caused prices to skyrocket. After the war in Ukraine began to ramp up, global trade issues worsened.

“Home replacement costs increased 16.3% from March 2021 to March 2022, more than double the Consumer Price Index (during that span),” Leonard says.

Homeowners insurance policy limits are typically based on the insurance company’s calculation of your home’s replacement cost. This takes everything from the home’s age to construction style into account, along with economic factors like the local cost of building materials and labor where you live.

In the event of a disaster, most homeowners want their homes rebuilt to their pre-loss condition, says Mark Friedlander, spokesman for the Insurance Information Institute. With inflation at record highs, it’s important for policyholders to check in with insurers to make sure their policy’s dwelling coverage limits reflect current reconstruction costs. Otherwise, they may not have enough insurance to pay for a full rebuild after a major loss.

“More than half of U.S. homeowners are underinsured and do not have enough property insurance coverage to replace their homes in the event of a catastrophic loss,” says Friedlander.

Just 30% of insured homeowners have purchased more coverage or increased their existing coverage limits to account for rising inflation, according to a recent survey by the American Property Casualty Insurance Association, a trade group for insurance companies. This is despite the fact that the price of construction materials increased 44% from December 2019 to December 2021.

How to prevent your home from being underinsured

As a general rule of thumb, you’ll want to review your policy at least once per year to ensure your coverage amounts are accurate. But given the unprecedented spike in replacement costs since last year, there’s a good chance your insurer will take a more proactive approach in the event you forget your annual checkup.

“Insurance companies and agents continually stress the importance of being fully insured with their policyholders,” Friedlander says. “In fact, many insurers are proactively adjusting policies at renewal by raising dwelling limits based on current replacement costs.”

However, insurer replacement cost calculations aren’t always accurate. Many home insurance policies come equipped with an inflation guard that automatically adjusts dwelling coverage limits to reflect current replacement costs. But with labor and construction costs increasing by the day, it may not matter if your renewal adjustment is accurate or not.

Homeowners also need to keep in mind that home reconstruction costs often skyrocket in areas impacted by natural disasters due to the surging demand for materials and labor. With wildfire and hurricane seasons in full swing, here are three additional coverages that can help prevent you from being underinsured:

1. Extended replacement cost coverage

Extended replacement cost coverage is an optional policy add-on that increases your policy’s dwelling coverage limit an additional percentage amount (usually 25% or 50%) in the event your home’s replacement cost exceeds the coverage limits in your policy. This add-on is especially valuable for homeowners in high-risk areas of the country that are experiencing higher rebuild costs due to both rising inflation and demand surge after natural disasters.

2. Ordinance or law coverage

Ordinance or law coverage is an additional coverage that increases your home insurance policy limits after a loss to comply with local building codes. For example, if local building codes require you to upgrade your home’s electrical and plumbing systems after a covered loss, this coverage could help cover the increased costs.

3. Flood insurance

A standard home insurance policy doesn’t cover water damage caused by flooding, so homeowners in at-risk areas will want to consider flood insurance to ensure they’re fully protected.

“Lack of flood insurance remains the largest insurance gap we see across the country,” Friedlander says. “More than 90% of U.S. catastrophes involve significant flooding, so you don’t need to live in a coastal area to sustain flood damage.”

This article originally appeared on PolicyGenius.com and was syndicated by MediaFeed.org.

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How to buy a house of out of state

 

With millions of American workers now laboring remotely (sometimes far from corporate HQ), some U.S. workers are wondering how to buy a house out of state.

 

Long distance house-hunting requires a bit more planning than shopping for property just down the street. After all, the types of homes and property for sale and even the home-purchase laws can vary from state to state.

 

While data is scarce on the number of people in the U.S. who are looking to buy a house in another state, one report shows that one in five Americans moved or know someone who moved during the COVID-19 pandemic in 2020.

 

The breakdown, according to age groups, is striking, with 37% of people ages 18 to 29 reporting that they relocated, had someone new move into their current housin  or know a person who moved.

 

Figuring out how to buy a house out of state can be a challenge, but for some it’s doable with a little long-distance house hunting advance planning.

 

Here’s an overview of the process of buying a house in a different state, from finding an on-site real estate agent knowledgeable about the local market to visiting potential properties before purchasing.

 

Related: Is now a good time to buy a house?

 

 

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There are multiple reasons why homebuyers might consider a house in different state.

 

 

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According to one 2019 study, 16.4% of Americans who moved did so because they sought an improved home living experience—including houses and apartments.

 

 

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People may opt to move to another state because it’s more affordable to buy a home there, when accounting for local cost of living and average home costs, than in the state where they currently reside.

 

 

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Some companies or employers relocate personnel to out-of-state locations. Data from the US Census claims that 10.3% of Americans moved out of state due to a job relocation in 2018, for example.

 

 

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Homebuyers may choose to buy a house out of state to be closer to family. Some might move to take care of aging or infirm family members. Others might choose to move to be closer to where their children or grandchildren live.

 

 

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Americans entering retirement may want to buy a home in a state where the weather and style-of-life appeals to retirees. According to one study, approximately 930,000 people ages 60 and older moved across state lines in 2018 – that’s up 16% from five years earlier

 

 

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As the saying goes, the shortest distance between two points is a straight line. That goes double for people looking to buy a home out of state. Here are some ways to tackle that inter-state move.

 

 

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In this, the digital age, it’s easy to use the internet to research new homes and communities. Leverage “locator” sites like Google Maps to study a potential out-of-state home’s proximity to good schools, medical centers, law enforcement agencies, parks, and restaurants and retail outlets.

 

In doing so, you’re already getting a good sense of an out-of-state community before you start looking for a specific house

 

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Social media platforms like Facebook Groups or Nextdoor can hook you up with local community groups online to get a better – and more personal – sense of home buying and community.

 

These groups are highly user friendly to newcomers and many group members are happy to answer any questions about life in their city or town.

 

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If you’re relocating out of state for a job or to move closer to family, check in with future co-workers and family members on advice on the best homes, neighborhoods and communities.

 

Once again, local knowledge can be a big benefit to homebuyers seeking to buy a residence out of state, but who lack sufficient knowledge of the local areas they’re targeting.

 

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Yes, home relocation professionals exist. And, they could be a big help for individuals and families interested in an out-of-state move. A relocation expert can be especially helpful in making an out-of-state relocation easier on the homebuyer. Relocation specialists might help with things like:

 

  • Finding a long-distance moving company
  • Enrolling children in local schools
  • Securing a storage spaced for excess household inventory
  • Supervising contractor work on location, when either buying or building a home

Relocation companies could also link you up with local service providers, like a doctor, dentist, lawyer and accountant. Some may be able to help homebuyers to transport pets and ship family vehicles across state lines.

 

In certain cases, relocation services can be free of charge, as some earn their money from third-party vendors, like real estate firms or employers moving employees to an out of state location.

 

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Some people who are interested in buying a house out of state opt to partner with an experienced real estate agent based in the area where they hope to move.

 

Why do some out-of-state homebuyers opt to pair up with a local realtor? Real estate agents based in that state may be able to provide more detailed information of local geography, towns and the properties types on the market.

 

Real estate agents, also known as buyer agents, can also walk potential homebuyers through local zoning regulations and permits that may be necessary for house upgrades, as these can vary from state to state, town to town.

 

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In today’s digital age, it’s not always necessary to show up in person just to check out a property. Online house listings may include photos of the property (inside and outside), floor plans (if it’s not yet built) or videos of the space.

 

Local realtors can also send interested homebuyers images, data, and information on “homes for sale” in the new state.

 

That said, it’s understandable that someone looking to buy a house in a new state may want to conduct an on-site visit, too, especially once a property of interest has been found.

 

If you’re working with a real estate agent, you may receive short notice on when a home is open to viewing. So, it could be helpful to budget for out-of-state travel as part of the build-up to buying a home in another state.

 

While a real estate agent can act as a proxy for homebuyers, there’s nothing like being on site when a home inspector examines a listed home.

 

Licensed home inspectors can answer questions about the property, while the potential homebuyer is physically present and able to view any necessary repairs.

 

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It can be easier to find an experienced realtor or relocation specialist with a mortgage loan pre-approval letter in hand.

 

When a lender pre-approves a mortgage applicant (a hard credit check and a review of financial assets and documents is typical with home loan applications), they’re greenlighting a specific home loan amount at a particular interest rate.

 

Obtaining a pre-approval letter from a lender can communicate to home sellers and realtors that a homebuyer has already qualified for a home loan up to a certain amount.

 

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While being on site is a good idea when the home is being inspected, homebuying closings can also be handled digitally.

 

You may need to pay a notary public to come to your current home to sign and credential key documents (or visit the notary at his or her local office) but the actual home closing can be done remotely.

 

Still certain legal documents may require a physical signature, so there could be some additional costs tied to mailing signed paper documents.

 

Your real estate agent or relocation experts might be able to help you find a good notary and title company with experience in your current state of residency and the one you plan to move to.

 

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Once you’ve signed off on your new out-of-state home purchase, don’t wait to find a trusted long-distance moving company.

 

Check online for rate information and reviews and stick with a long-distance mover with a solid reputation for reliability, performance, and high ethical standards.

 

You could start that search on the U.S. Department of Transportation website, which tracks moving companies that transit across state lines. Here, you can check out potential movers’ company safety profiles, crash reports, and inspections.

 

Online review sites, like Yelp or Consumer Reports, can also be checked to read up on other consumers’ experiences working with specific companies.

 

Once you’re convinced the mover is reputable, it could be helpful to email or call to discuss moving rates and expected timelines for a long-distance move.

 

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Buying a home in a new state can be confusing, especially when you don’t already live there. But with some careful preliminary research and pre-planning conducted, moving across state lines is something that millions of Americans do each year.

 

Applying for mortgage pre-approval, finding a local realtor, and seeing listed properties in person are just some ways to pursue buying a home out of state.

 

Learn more: 

This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.

 

 

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