Latest Victim of Inflation: Homeowners Insurance
Watch your homeowners insurance. Inflation may be masking a combination of higher premiums and lower coverage.
In fact, it looks like this may another example of how we experience inflation but it doesn't "show up" in the government's inflation statistics. Let's check out some facts and use our common sense here. We'll start with a brief look at recent inflation history.
When the method for calculating inflation began to change in 1980, the country had just experienced the highest sustained inflation in its history throughout the 1970s. The CPI was then re-jiggered in the '80s and '90s.
During the '80s and '90s, inflation declined. For a while, people were grateful. Then, sometime in the 1990s, you'd start to hear people complain that CPI inflation statistics didn't accurately reflect what they were experiencing. While the government continued to explain that inflation was, in fact, low and heading lower, people were skeptical.
These days, even more people are skeptical, to put it mildly. And this brings us to some facts about homeowners insurance. They can serve as an example of why we "feel" inflation but it's not reflected in the numbers.
Two things are happening now with homeowners insurance: premiums are rising; coverage is declining. (You can read more details by clicking here.) It's the same phenomenon we've all seen in the grocery stores and departments, where size goes down and price either remains the same or edge up.
With homeowner's insurance, though, it's harder to spot the differences in coverage. For example, in the past, the typical homeowner's policy would cover you if a sinkhole developed under your home. If your home was damaged by the ground literally giving way underneath a part of the house, you would be covered. That's not necessarily true now.
Sink holes are rare, but damage to roofs isn't. Depending on the state you live in (insurance policies differ - sometimes significantly - based upon what state you live it), if you sustain damage to your roof, you may not be able to collect from your insurance. Coverage has been eliminated in many states, but frequently people don't know this. If you have an insurance agent, the agent may have pointed this out when it came time to renew your policy. Then again, not all insurance agents are diligent in these sorts of matters.
These changes in homeowner's insurance are an example of how the CPI tells us inflation is low, but reality tells us it's going up.
But don't expect the government to tell that you're right and they're wrong about inflation. That's not happening. We've talked about this before. The government picks items that don't go up too much, or don't go up at all, and they stock their CPI with those items. They take out items that have gone up a lot, or are going up in price now.
While I do think the government's playing games with us here, you don't have to get all worked up about it. Using your common sense, mixing in a few facts - like what we just saw with homeowners insurance - you can see that, in a sense, they're right and you're right. You don't have to be a mathematician or a statistician to understand why the government's CPI shows low inflation, but you're seeing high inflation. It's simply that there's inflation in some items and not in others. You see that, right?
On the other hand, let's not let the government off the hook here. They're not saying that low inflation only applies to certain items. They're using those items to claim that inflation - in general - is low. But we know better, right?
In fact, it looks like this may another example of how we experience inflation but it doesn't "show up" in the government's inflation statistics. Let's check out some facts and use our common sense here. We'll start with a brief look at recent inflation history.
When the method for calculating inflation began to change in 1980, the country had just experienced the highest sustained inflation in its history throughout the 1970s. The CPI was then re-jiggered in the '80s and '90s.
During the '80s and '90s, inflation declined. For a while, people were grateful. Then, sometime in the 1990s, you'd start to hear people complain that CPI inflation statistics didn't accurately reflect what they were experiencing. While the government continued to explain that inflation was, in fact, low and heading lower, people were skeptical.
These days, even more people are skeptical, to put it mildly. And this brings us to some facts about homeowners insurance. They can serve as an example of why we "feel" inflation but it's not reflected in the numbers.
Two things are happening now with homeowners insurance: premiums are rising; coverage is declining. (You can read more details by clicking here.) It's the same phenomenon we've all seen in the grocery stores and departments, where size goes down and price either remains the same or edge up.
With homeowner's insurance, though, it's harder to spot the differences in coverage. For example, in the past, the typical homeowner's policy would cover you if a sinkhole developed under your home. If your home was damaged by the ground literally giving way underneath a part of the house, you would be covered. That's not necessarily true now.
Sink holes are rare, but damage to roofs isn't. Depending on the state you live in (insurance policies differ - sometimes significantly - based upon what state you live it), if you sustain damage to your roof, you may not be able to collect from your insurance. Coverage has been eliminated in many states, but frequently people don't know this. If you have an insurance agent, the agent may have pointed this out when it came time to renew your policy. Then again, not all insurance agents are diligent in these sorts of matters.
These changes in homeowner's insurance are an example of how the CPI tells us inflation is low, but reality tells us it's going up.
But don't expect the government to tell that you're right and they're wrong about inflation. That's not happening. We've talked about this before. The government picks items that don't go up too much, or don't go up at all, and they stock their CPI with those items. They take out items that have gone up a lot, or are going up in price now.
While I do think the government's playing games with us here, you don't have to get all worked up about it. Using your common sense, mixing in a few facts - like what we just saw with homeowners insurance - you can see that, in a sense, they're right and you're right. You don't have to be a mathematician or a statistician to understand why the government's CPI shows low inflation, but you're seeing high inflation. It's simply that there's inflation in some items and not in others. You see that, right?
On the other hand, let's not let the government off the hook here. They're not saying that low inflation only applies to certain items. They're using those items to claim that inflation - in general - is low. But we know better, right?
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