Construction costs are significantly increased due to inflation, demand, and supply chain shortages followed by the pandemic. However, do you know that the rise in construction costs could also increase your home insurance costs? Yes, the increased building materials costs could directly impact the cost of repairing or rebuilding a home, thus increasing claim expenses. Let’s see why the costs are rising.
Reasons Why Home Insurance Costs Could Rise
The cost of insurance coverage per unit or your rates can increase over time due to improvements or increasing coverage limits. However, the rate increase is not only a factor in increasing your premium or coverage cost. Your premiums can also go up without rate changes.
For example, the dwelling coverage (covers repairing or rebuilding costs after a covered loss) limit usually determines your premiums and insurance costs, as it is a large part of your policy limit. If your dwelling coverage limit is $200,000, but you want to increase it to $250,000 due to the addition of an extra room or deck, your premiums will increase, which will further increase your home insurance costs.
Why Have the Construction Costs Increased?
The rise is not just due to market fluctuations or common economic trends, but the pandemic has hampered the production and supply of building materials, increasing their demands. On the other hand, several homes in Texas were damaged following the 2021 winter storm, which also increased the demand for building materials amid the supply shortages. Eventually, the increase in demand and decrease in supply have increased construction costs.
How Does the Rise in Construction Costs Impact Home Insurance Costs?
The replacement cost usually determines your dwelling coverage limit. As the costs of labor and materials have increased, your existing coverage limit may not be enough to cover you in the event of a loss. It is crucial to review your policy to determine whether your existing coverage limit is enough or if you need to increase it. If you increase your coverage limit, your home insurance costs will also increase.
What Is Next – Contact Your Insurance Company
If you want to extend your coverage limit, contact your insurance agent, as they will help you update your policy with the required coverage limits. Also, ensure to discuss the following factors with them:
Deductibles and Coverages
Increasing the coverage limit will increase your deductible too, so ask your agent about your existing coverage and how much the deductible will go up in case of increasing the policy limit.
Extended Replacement Cost Coverage
It is an optional feature you can add to your home insurance policy to get reimbursed for the amount beyond your dwelling coverage limit. The additional amount you can get would often be around 10-50% of your dwelling coverage limit.
Keep your insurance agent informed about the new additions to your home, as depending on the size of the renovation, you may need to increase the coverage limit.
Factors Accounting for Reconstruction Cost Estimates
These factors are considered while evaluating reconstruction cost estimates:
- Number and type of rooms (living rooms, bathrooms, kitchen, etc.)
- Building materials (metal, wood, brick, etc.)
- Roof type and material
- Size/square footage
- Number of stories
- Construction year
How Does Replacement Cost Value Differ from Market Value?
The replacement cost value is the cost to rebuild your home that only considers the cost of materials and labor. However, your home’s market value depends on several factors, including its size and location, features, neighborhood resources, and proximity to schools, hospitals, cities, stores, etc.
For example, if you have upgraded your home in an old neighborhood, the rebuilding cost may be more than the market value. If you have a small home in a well-developed prime town, the rebuilding cost may be less than the market value.
Protect Your Home with Gant Insurance
Whether you need a comprehensive home insurance policy or are looking to upgrade the existing one, contact our experts at Gant Insurance Agency today. We will help you find an affordable policy that offers extensive protection despite the increase in construction costs.