One trend we are seeing post COVID-19 pandemic is the surge in building material costs. Not only was a supply and demand issue present, but interest rates were also at an all-time low. With the low interest rates, an increase in home purchases created an increase in home renovations and projects. With construction costs so high, how does this affect your homeowner’s insurance? Will premium prices go up? Well, it is possible.
For current policies, homes were at a lower replacement cost compared to today. The National Association of Home Builders (NAHB) confirmed constructions costs have risen in the past year. NAHB states that lumber costs 340% higher from 2020. Unfortunately, since the beginning of 2021 prices have continued to increase even more.
With prices of lumber and construction costs continuing to rise, homeowners could be left vulnerable in the event of a loss. Current policy limits and coverage could no longer give homeowners the adequate protection they need. As a result, insurance carriers could increase policy premiums to account for the increase in costs and claim expenses.
With the ongoing costs rising, ensure you are taking measures to make sure you are covered. Some of the following points are a great place to start.
- Review your policy. Go over your current policy and make sure you understand it. Do you have replacement cost coverage or actual cash value coverage? Replacement cost coverage offers compensation for the cost of replacing or rebuilding the home as new whereas actual cash value coverage offers compensation for the depreciated value of the home. Make certain your policy offers the correct replacement cost or value of your home.
- Consider coverage adjustments. Contact a trusted insurance professional or your current agent to ensure you have the proper coverage and to make changes to your current policy if you don’t. If you don’t have enough coverage to protect your home in the event of a loss, some things such as changing your policy limits, changing your valuation method, or obtaining specialized coverage may have to occur. If you don’t have an insurance agent or need a new one, please don’t hesitate to contact us for help on your current policies or to shop new rates. We would be happy to answer any questions you may have.
- Communicate with your current insurance carrier. Always ensure you are communicating with your insurance carriers of any renovations you do on your home. For example, remodeling the kitchen or adding on to the home. Make sure your policy stays up to date.
Ensure you are aware of your homeowners policy contents and that you have proper coverage. If you are not sure, always reach out to your trusted agent or your carrier. They will be able to help you with any questions or concerns.