Some insurance industry experts are warning homeowners that their insurance policies may not be enough to replace their houses in a fire or tornado.

Inflation is driving up the cost of home development, which could cause problems for homeowners. Increases in the cost of lumber and other construction supplies, along with supply chain concerns and labor shortages, might leave many homeowners underinsured if they need to rebuild following a covered insurance claim.

If calamity strikes, homeowners who do not have enough insurance may dip into their wallets to make up the difference. Now is the moment to double-check that you have enough insurance to cover the expense of rebuilding your home (also known as replacement cost). Here’s everything you need to know about it.

Find out How much it would Cost to Replace your Home

Insurers use replacement cost calculators to assess how much dwelling coverage is required to restore your home. The projected replacement cost includes information about your homes, such as square footage, construction materials, and year.

You can also determine the replacement cost of your home on your own. According to Alan Himmel, a public insurance adjuster in Florida, one technique is to increase your home’s square footage by the current cost of building per square foot in your area. “You can acquire an indication of building expenses per square foot by contacting your local builder’s association, an insurance agent, or even… contractors.” The majority of estimates will fall between $100 and $200 per square foot.

You can also engage a contractor to offer a building estimate or have an independent insurance agency obtain multiple homeowners insurance quotes to determine how much each insurer estimates it will cost to reconstruct your home.

When it comes to your personal property, double-check the declaration page of your policy to verify if you’re protected by replacement cost or actual cash value. Replacement cost coverage pays to repair or replace your home or valuables up to the limits of your policy, without taking into account depreciation or the loss of value over time. It means that your insurance company will pay to reconstruct your home to its pre-loss condition and replace your personal belongings with new ones.

Meanwhile, actual cash value takes depreciation into account. It will almost certainly need you to pay the gap between what your insurance covers and the cost of entirely replacing your things. For example, if your sofa is destroyed in a covered fire, your insurer will only pay the value of the sofa when it was destroyed, not the cost of replacing it with a brand new one.

Consider Purchasing Extended or Guaranteed Replacement Cost Coverage

While you can estimate how much it would cost to remodel your home today, predicting future construction expenses is challenging. Even the cost of rebuilding in your area might skyrocket suddenly if a big storm strikes.

Extended replacement cost coverage can be added to a house insurance policy to cope with such uncertainty. If your dwelling coverage limit isn’t enough to rebuild, this coverage will pay a percentage of the difference. For example, if your dwelling coverage is $100,000 and you have 25% extended replacement cost coverage, your insurer will pay $125,000 to rebuild your home.

Consider guaranteed replacement cost if you want complete certainty that your insurance will cover the whole cost of rebuilding your house, regardless of how much construction costs rise. “When I sell a policy, the most confidence I ever am is when the client gets a guaranteed replacement cost endorsement,” says Peter Conte, a New York City-based independent insurance agent. “They can rest easier knowing that they’ll receive their home back when it’s time to file a claim.”

A higher premium is usually associated with guaranteed replacement coverage. It is possible that not all insurance companies will offer it and that it will not cover older homes.

Look at Other Insurance Choices

Many home insurance policies include an inflation guard, which can help protect you from underinsured due to rising inflation. An inflation guard will automatically increase your coverage limits to account for inflation when your policy is renewed.

Although the inflation guard may cause your premium to rise, don’t reduce your coverage limits only to save money on house insurance. “The inflation guard is designed to help you align with the US dollar’s inflation rate,” Conte explains.

“New statistics from the Case-Shiller Housing Index reveal the cost of property prices in the top 20 metro areas throughout the country,” said Kevin Croft of Drake University’s Kelley Center for Insurance Innovation. “As of January, the cost of a home had increased 19.2 percent year over year, up from 18.9 percent in December. As a result, the cost of reconstructing or purchasing a new home increases.”

“You may get an inflation guard rider,” Croft explained, “which will boost the stated coverage in your insurance when inflation rises.” “The second is guaranteed replacement coverage, which means you’ll be fully covered even if the cost of restoring your damaged home and carrying away old debris exceeds the amount you paid for the assurance.”

Anyone looking for insurance for their home or car should consider a high deductible.

“A good approach with your insurance is to have a large deductible and then buy as much coverage as you can afford,” Croft advised. “That deductible means you’ll have to pay the first thousand or two thousand dollars out of pocket, but you’ll be able to get a lot more coverage after that because the insurance policy isn’t intended to cover little claims; it’s designed to cover catastrophic claims like home devastation.”

All in all, Croft stated that it is always a good idea to assess the risks you face in your life.

“We want to think about a living, breathing, and personal risk management plan that incorporates everything that can happen to us in life,” said Croft. “It could be a loss of your home, a loss of employment, or a disability, and it certainly could be the loss of life-through life insurance.”