Rising Construction Costs Can Impact Your Insurance Costs

14 Aug

If you are starting a renovation or in the middle of a home improvement project you have probably been shocked by construction costs. Lumber, iron, steel as well as labor costs have been rising over the last year, pushing up the cost of home repairs as well as renovations. According to Verisk’s (ISO) most recent 360 Value Quarterly Cost Update, construction costs have skyrocketed 8.1 percent across the country between January 2020 and January 2021.

Unfortunately, rising construction costs can also impact your insurance costs. Homeowners insurance is designed to help cover the costs to repair or rebuild your home after it is damaged or destroyed, up to your coverage limits. As construction costs rise, your coverage limits may be exceeded, leaving you on the hook for some of the cost to rebuild or repair your home after a major claim. 

It’s important to talk to your insurance agent to make sure your current policy limits are appropriate for your home considering rising construction costs. When checking in with your insurance company or agent, be sure to ask about the following:

Dwelling coverage: This is the section of your policy that deals with rebuilding or repairing your home and this portion can be impacted by rising construction costs. As an example, if you are carrying $250,000 in coverage but rising construction expenses push the cost to rebuild your home up to $300,000 you will have to cover $50,000 in costs. 

It is important to make sure you are carrying enough dwelling coverage, check with your agent about local construction costs and calculate the cost to rebuild your home, if you are not carrying enough coverage you may need to up your dwelling coverage. Rising construction costs are not the only reason to verify you are carrying enough coverage. Anytime you renovate your home, add square footage, or just upgrade a room you should verify your dwelling coverage. 

Replacement value vs Actual Cash Value: Check your policy to make sure you are carrying replacement value coverage instead of actual cash value. Replacement value will cover the cost of replacing your damaged items with brand new ones while Actual Cash Value takes deprecation into account. 

This means that your 10-year-old roof will be paid out at reduced value, and you will have to make up the difference when rebuilding or repairing your home. An actual cash value policy can leave you owing tens of thousands of dollars to rebuild or repair your home. 

Discounts: Whenever you check in with your insurance company or agent regarding coverage levels or other adjustments to your policy you may want to ask them to do a discount review to make sure you are getting all available discounts that you are qualified to receive. 

Tags: , , , ,