Insurance Values and Inflation
One of the most challenging things to do right now when advising clients on their insurance coverage is giving direction to building costs in light of the changes that have happened to the price of steel and wood in the last year. This has caused many insurers to increase the level of inflation they apply to replacement cost limits from previous years. For those not interested in reading another article about the cost of lumber and steel, let’s use the alternative pandemic lock-down waistline to do some math.
If you started the pandemic in excellent physical condition with a solid core, maybe even with a hint of a six-pack of abs, there is the chance that you may be lucky enough to still have a similar physique. However, for the majority of Canadians, that six-pack may have been reduced to 4, 2 or even 1 ab now.
In this hypothetical scenario, the waistline that used to be a tight 32 inches, has now expanded to 34, 36 or maybe even the new trendy 38” waistline. To increase from a 32-inch waist line to a 38-inch waistline means that your waist has inflated by 6 inches, or 18%. That is a lot of inflation in an 18-month window, but we are not in the business of judging waistlines! Chances are good that you have had to invest in some new pants and shorts, or have simply swapped your entire wardrobe for the new pandemic approved Dress-Sweat pants.
There is one main difference between the hypothetical scenario above and the inflation that we see on rising building costs. When I shop for pants, while there is difference in sizes, retail stores do not charge more for larger sizes – so whether you are locked in at 32 or 38” waist, you are going to pay the same amount for those pants.
With rebuilding costs, your insurance premiums are based on a rate per $100 of insurance coverage, so as inflation is applied the premium that you pay increases as you are requiring more insurance coverage to replace that same item. The rate may not be changing, but the amount payable will change due to the increases to limits.
We have a few strategies that we are using to make sure that our clients are properly insured, while providing them options for premium savings through deductible and coverage options to make sure that they are adequately insured and getting the maximum value available to them.
Are you getting the best value for your insurance coverage? Do you have questions about dress-sweat pants? Work with someone who will explain the differences and options to you to make the best decisions for your operation. Rempel Insurance Brokers Ltd. is open for business and glad to assist you with your insurance needs.
David Schmidt is an Account Executive at Rempel Insurance Brokers in Morris, MB, specializing in insuring farms and businesses across Manitoba and Saskatchewan.
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