As the cost of buying and installing home building supplies goes through the roof, you may find yourself without enough insurance to rebuild should disaster strike.
Sawmills slowed production in 2020 in response to the COVID-19 pandemic-induced economic slowdown. Meanwhile, homeowners stuck at home went on remodeling sprees. As a result, from October 2020 to May 2021, lumber prices more than tripled. The prices have dropped from their peak but remain more than 50% higher than in previous years.
Labor costs for home construction and repairs are also increasing. With borrowing costs at historic lows, contractors who build or remodel homes are in high demand. Many contractors complain of not being able to hire enough workers to keep up, and the ones they hire are getting higher wages.
The Effect on Your Coverage
Even if you are not building or remodeling a home, these cost increases may be a problem for you. Every homeowner’s insurance policy shows a dollar amount, known as a “limit of insurance” which is the most the company will pay for loss of or damage to the home. This limit is based on the estimated cost of rebuilding or replacing the home should it be destroyed. However, an estimate that seemed reasonable before material and labor costs jumped may not provide enough money now to rebuild the home.
What You Can Do
- Talk with your agent about increasing the amount of insurance on your home. They can give you a rough idea of what it may now cost to rebuild your home.
- While you’re at it, this is a good time to discuss your insurance with your agent. Does your insurance provide coverage for replacing or rebuilding the home or only for its cash value? Does it cover you for the increased cost of meeting new building codes? Does it fully cover you if you’re operating a business from your home or a detached garage?
- If you remodel or add on to the home, it is essential that you notify your agent. Your limit of insurance is based on the way your home was, but if the home is no longer the same, your carrier needs to know about changes before you can be properly insured.
There is not much to be done about rising construction costs, but you can take proactive steps to make sure your insurance will protect you the way you need.