My kid loves Lego. Imagine, I buy him a 100-piece Spider-Man Lego set, and it arrives missing 30 pieces!   A letter inside from the company’s legal department says, “We regret to inform you that the price you paid originally now only covers 70% of the full set. You may still build this set; however, we have removed Spider-Man’s legs. Good luck!”

Oh, the tears and the confusion. How do I explain to my six-year-old son why Lego sent a Spider-Man set without any legs?

Likewise, many customers could face a similar issue when they file a property claim with their insurance company in 2023.  Due to inflation, every company I know is re-evaluating property coverages. These companies believe the buildings they are insuring may be undervalued by as much as 30%! 

They are looking at building reconstruction costs and the values of contents, inventory, and business income and are increasing the insured values to keep up with inflation.  For your property to be covered in the event of a loss, this is a good thing.   However, with more coverage comes higher premiums.

So how can you determine how much of your price increase is related to property values, and how much could simply be a price increase from the insurance company? Some companies are going to bake in more price increases than others.

Let’s say you have a $1,000,000 property value, and your annual premium is $2,000.  If your estimated building value increases by 50% to $1,500,000, you would expect your premium to increase 50% around $3,000.

In this example, if you found the renewal premium on your property policy is much higher than $3,000, then it’s possible you could be getting price increases that aren’t related to your property value but are included in the property coverage.

No one wants a Spider-Man Lego set with no legs, right?  In the event of a loss, you want your property coverage to cover the property’s actual value.  Just be sure to check how much of the increase is related to the increase in the property’s value.

Further Reading