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Transcript
- Lucas: So you get your homeowners insurance renewal in the mail. You haven't filed a claim in years. Maybe not ever. And the premium is up twelve percent. What gives? Luna: And the knee-jerk reaction is to shop around. But the problem might not be your insurer — it might be the number they're insuring. Lucas: Exactly. The dwelling coverage limit — that's the amount that would actually rebuild your house if it burned down — that number has been quietly drifting higher. And most people don't notice until they get the bill. Luna: Let me guess. Inflation in construction costs? Lucas: That's a big piece. The CPI's shelter component is up about three and a half percent year-over-year as of May. But that's an average of rent and owners' equivalent rent. What insurers actually care about is the cost to rebuild — which has been running even hotter. Luna: Because lumber, labor, concrete — all those inputs have their own inflation. Lucas: Right. And if your policy has an inflation guard endorsement — which most do, automatically — the dwelling limit creeps up each year. But here's the thing: that automatic increase is usually pegged to some national index. It might not reflect what's actually happening in your local market, especially after a disaster or a building code update. Lucas: So you could be underinsured by twenty percent or more and never know it until you file a claim. Luna: And then you're on the hook for the gap. That's the kind of inflation that really hurts — it's silent, it's structural, and it only shows up when you need the payout. Lucas: Which is exactly why we're devoting an episode to it. Before we go deeper — if today's conversation helps you think about your coverage differently, the way these conversations stay ad-free is listener support. You can buy me a coffee dot com slash fexingo — that's buy me a coffee dot com slash fexingo. It's a small way to keep the show independent. Luna: Yeah, it really helps. And we don't sell your data or run interruptive ads, so if you find value here, that's the route. Lucas: Alright. Back to the numbers. The ten-year breakeven inflation rate — that's the market's expectation for average inflation over the next decade — was at 2.23 percent as of yesterday. That's actually down a tick from 2.24. But it's still above where we were a year ago. Luna: And insurers are using those expectations to set premiums. They're not just reacting to past inflation — they're pricing in future inflation too. Lucas: Exactly. That's why even as headline CPI moderates — energy prices fell in June, according to some prediction markets — insurance premiums keep rising. The risk hasn't peaked yet in the actuarial models. Luna: So what can a homeowner actually do? Other than cross their fingers. Lucas: First, check your dwelling limit. Don't assume the insurance company's number is right. Get a local contractor to give you a per square foot rebuild estimate. Then compare that to your policy. Luna: And if there's a gap, you can increase your coverage — or add an extended replacement cost endorsement, which covers overages up to a certain percentage. Lucas: That's the right move. Some policies offer twenty-five or fifty percent extended replacement cost. It costs more, but it's cheap relative to the alternative. Luna: What about deductibles? I've seen people get stung there too. Lucas: Absolutely. A lot of policies have moved to percentage-based deductibles for things like wind or hail — one percent, two percent of the dwelling limit. If your home is insured for 400,000, that's a four-thousand-dollar deductible. That's a form of inflation too — your out-of-pocket grows with the limit. Luna: So it's not just the premium. It's the whole risk exposure. Lucas: Right. And one more thing: climate risk. Insurers are increasingly factoring in local wildfire, flood, and hurricane probabilities. Even if you're not in a high-risk zone, the models are getting more granular. Luna: And that can push up rates for everyone in a region, not just the houses on the coast. Lucas: Exactly. The data from the Fed's recent Beige Book mentions that some carriers are pulling out of certain markets altogether. That's a supply shock — fewer insurers means less competition, which means higher prices. Luna: So the inflation in homeowners insurance isn't just a CPI story. It's a construction costs story, an actuarial story, and a climate story all rolled into one. Lucas: And it's not going away. The breakeven inflation rate tells us the market expects inflation to stay above two percent. That means your dwelling limit will keep rising, and your premium will too. Luna: Which brings us back to the one thing you can control: making sure you're not underinsured. Because the worst time to discover a coverage gap is after a loss. Lucas: So call your agent. Ask for a replacement cost estimator. Ask whether you have extended replacement cost. Ask how your inflation guard is calculated. A ten-minute conversation could save you tens of thousands. Luna: And if you have a good experience — or a bad one — we'd love to hear about it. But more importantly, go check that policy. Lucas: Next episode, we're looking at how inflation is quietly eating your car insurance premium. Because it's not just houses. Luna: See you then.