Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Homeowners Insurance Deductible
Transcript
- Lucas: If you filed a homeowners insurance claim today for roof damage from a storm — say a tree branch goes through a few shingles — how much are you actually on the hook for out-of-pocket? Luna: Your deductible, right? Usually a fixed dollar amount. A thousand bucks, maybe two thousand. Lucas: Exactly. And that number hasn't changed for most people since they bought the policy. But the purchasing power of that fixed amount has been quietly shredded by inflation over the last five years. Luna: So the deductible itself is getting smaller in real terms — meaning we're paying more out of pocket when we actually need it. Lucas: That's the angle today. Let's put a number on it. The CPI for all urban consumers stood at 332.6 in June 2026, down a bit from 333.98 in May, but cumulatively prices are up about 22 percent since the start of 2021. So a $1,000 deductible from a policy you bought in early 2021 is now worth around $820 in 2021 dollars. Luna: Ouch. So you think you're paying a thousand, but really you're paying almost $1,220 in today's money to cover that same nominal deductible. Lucas: Right. The insurer hasn't changed the dollar figure, so you feel like your policy is the same. But the share of the repair cost you're covering has grown. And repair costs have grown even faster than general inflation. Construction materials, labor — those have outpaced headline CPI. Luna: I've seen that. My neighbor had a small kitchen fire last year, and the contractor bid was almost 40 percent higher than what he expected from a similar job five years earlier. Lucas: That's the second layer. Not only has your deductible's real value shrunk, but the total claim amount has also inflated. So your $1,000 deductible is a smaller share of a much bigger pie, but you're still paying that fixed thousand. Except now it's effectively a larger burden on your wallet. Luna: And insurers have started to respond by raising deductibles or switching to percentage-based deductibles, especially in states prone to hurricanes or wildfires. Lucas: Exactly. In Florida, for example, it's common now to see a deductible of 2 percent of the home's insured value. On a $400,000 home, that's $8,000. That's a huge jump from a traditional $1,000 or $2,000 fixed deductible. And that shift is partly driven by inflation in construction costs and reinsurance rates. Luna: So if you haven't looked at your policy in a couple of years, you might be in for a shock the next time you file a claim. Lucas: That's the core message. And it's not just about the dollar amount. It's about being aware that the coverage you bought three or four years ago isn't the same coverage today. The gap between what you expect to pay and what you actually pay is widening, and inflation is the silent culprit. Luna: So what can listeners actually do? I mean, you can't just call your insurer and demand a lower deductible without paying more premium. Lucas: True. But you can do a few things. First, check your policy declarations page. Look at your deductible — is it fixed dollar or percentage? If it's fixed, has it changed since you bought the policy? If it hasn't, ask your agent to run a scenario with a higher deductible in exchange for lower premium. Then take the premium savings and put them into a dedicated home repair emergency fund. That way you're self-insuring the gap. Luna: That makes sense. And if you have a percentage deductible, make sure you know what the percentage is based on — the dwelling coverage amount, not the market value. Those can be very different. Lucas: Right. And one more thing: consider an inflation guard endorsement. Many insurers offer an automatic annual increase in your dwelling coverage to keep pace with construction costs. It costs a little extra, but it prevents a situation where you're underinsured and your deductible is eating up a bigger share of a claim. Luna: So the key is to be proactive. Don't wait for the storm to hit to find out your deductible has been quietly eroded. Lucas: And this is a good moment to mention something small but important. If our conversations on the show have helped you think about your finances differently — even just once — then a couple of dollars a month genuinely keeps these episodes coming. It's buy me a coffee dot com slash fexingo. No pressure, just what you'd spend on a real cup of coffee. Luna: Yeah, and it really does make a difference. Keeps us ad-free and focused on the numbers that matter. So if you've gotten something out of it, we'd appreciate it. Lucas: Okay, back to the deductible erosion. One overlooked angle: if you have a mortgage, your lender likely requires a certain level of coverage, but they rarely mandate a specific deductible amount. So you might be able to adjust your deductible without violating your loan terms — check with your lender first, but it's worth exploring. Luna: That's a good point. And I've heard some people are actually opting for a zero-deductible policy on smaller claims, but the premium jump is often steep. Might not be worth it unless you file frequently. Lucas: Right. The sweet spot for most people is a deductible that you could cover out of savings without stress. If a $1,000 claim would be a hardship, then keep the deductible lower and pay the premium. But if you have a solid emergency fund, you might be better off taking a higher deductible and banking the savings. Luna: And with the Fed funds rate at 3.63 percent, you can earn decent interest on that emergency fund in a high-yield savings account. So the math can work. Lucas: Exactly. The broader lesson here is that inflation doesn't just raise prices at the grocery store. It quietly rewrites the terms of your insurance contracts, too. And the only defense is periodic review. Pull out that policy at least once a year, run the numbers, and adjust. Luna: Good advice. And on that note, I'll be checking my own declarations page tonight. Lucas: Same. Next episode we'll look at how inflation is affecting something else you might not expect: the value of your credit card rewards points. They've been shrinking in real terms too. Luna: Looking forward to it. Until then, keep an eye on that deductible. Lucas: Thanks for listening.