How Rising Construction Costs and Home Values Can Affect Your Homeowners Insurance
Construction costs are on the rise due to soaring lumber prices and the cost of other raw materials.
If you already own a home, you may not think these cost increases will affect you. However, they have a direct impact on the amount of insurance you should have on your home.
When construction costs increase, it increases the amount of money it would take to rebuild your home. This means the coverage you purchased 5/10/20 years ago may not be enough to cover you if you have a loss. In fact, even if you purchased your policy last year you may be under insured due to the sharp rise in building materials over the last year alone.
In a May survey by the National Association of Home Builders, single-family builders said their material costs had increased an average of 26.1 percent from a year earlier just to build the same house — the largest single-year jump in the survey’s history.
What does underinsured mean?
Being underinsured means you have a policy that only covers a portion of your loss in a claim, often because of exclusions or coverage limits. For example, you might insure your home for $300,000, only to find out that rebuilding it after a total loss costs $400,000 – due to labor and materials. Homeowners who are underinsured may have to pay tens of thousands – maybe even hundreds of thousands of dollars – out of their own pockets.
How much should I insure my home for then?
You should insure your home for the amount it will take to rebuild it. However, rising construction costs can cause you to be underinsured if you simply renew your coverage for the same amount every year. Fluctuating costs for materials and labor could mean you don’t have enough coverage, especially if you’ve insured your home for its actual cash value. The depreciated value of your home will be even further away from the amount you’ll need to spend to replace it.
The replacement cost may also increase if you make improvements to your home, such as:
- Upgrading windows, electrical, and/or plumbing
- Remodeling the kitchen and/or bathrooms
- Finishing your basement or converting an attic into livable space
- Building an addition on your home
- Adding a deck, patio, or porch
- Upgrading the exterior of your home
As the value of your home increases, it is important to adjust the amount of coverage on your insurance policy as well. If you have made improvements to your home, let your insurance agent know so they can update your policy.
What can I do to be sure my home is properly protected?
When you notice home values in your area rising, or if you have made improvements to your home, it is important to have your policy reviewed. However, we recommend you review your policy every year regardless. Your premium may not even increase by much to add more coverage to your policy. However, it will provide a significantly higher level of protection and possible financial heartache.
Contact one of our agents today for a no obligation review of your policy. Our goal is to be sure you have the best coverage for you and your loved ones.
National Association of Home Builders – Building Costs Skyrocket Over the Past 12 Months.
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