PROPERTY INSURANCE AND THE BLACK HOLE OF HYPERINFLATION

Image by The Lakelander via Flickr

Listening to the experts, it sounds like most financial analysts agree that when the economy does begin to recover, inflation will probably be significantly higher than what we’ve seen in the past.  This hyperinflation can have a tremendous impact on insurance claims.  In the event of a property loss, depending on how the policy is written, if a property is significantly underinsured, the insured party will not receive replacement cost value, rather the depreciated value of the property minus the underinsured portion.  This could result in people only receiving pennies on the dollar at the time of loss.

Although you can schedule an annual increase in property insurance coverage (I see most at 4%), this solution is inadequate for periods of exponential inflation.  So what can you do?  Write letters to you insurance carriers suggesting that they develop a solution.  

Although there is currently no great solution, I thought this worth mentioning so that you can draw upon it if the future brings a period of hyperinflation.