The cost of underinsurance can be hard to understand, but with the rising costs of inflation, the risk is high, and it may be costly in ways your clients hadn’t considered when they were first researching their insurance policies. You should explain to your clients the cost of underinsurance and its potential impact on their wallets to make smart decisions about their insurance coverage.
What is Underinsurance
It doesn't make sense to spend more money than you have to, especially regarding insurance. But reducing coverage to reduce premiums could be more expensive in the long run. Underinsurance is one of the results of trying to keep insurance costs down by not insuring the correct amount.
Underinsurance occurs when declared values of assets - like property - and their risks are less than the actual values. Many clients realize they are underinsured only when they need to make a claim.
Explain the Inflation Situation
Consumers feel the effect of inflation as it affects everything we purchase, but they may not be aware of how it impacts insurance. Clients could benefit from education about the increase in costs for contractors, specifically how construction costs have been driven up by fuel prices, material costs, labor shortages, and other supply chain issues.
Since it is unknown how long inflation will continue to impact, ensuring that your clients are educated and adequately covered is crucial.
Protect Clients by Adjusting Coverage
Determine if your client is underinsured by asking questions. A few examples are noted below. Once you have assessed their situation, you can propose adjustments to their coverage as needed. This proactive approach will be appreciated and show that you value the client relationship:
- When determining the insurance value of your property, did you use the market value or the replacement cost?
- Have you reviewed the value of your home in the last two years?
- Have any changes been made to your property since it was last valued such as renovations or additions?
- Are there any additional complications to repairing your home?
- Does your home have any technological or material specifications that would make it more expensive to repair, such as solar panels?
- Is your home constructed with modern methods, such as modular?
The team at Affordable American Insurance is here to help you accelerate business growth and improve your client relationships. Contact AAI today to learn more about our unique insurance agent network.