The rise of construction costs and your home insurance

construction costs increase and insurance

You probably heard stories in the news already about the rising cost of construction materials and how this increase affected the construction business. Many are canceling their contracts as costs soar.

Lumber costs have gone up more than 170% in the past year. Concrete, metal, and even appliances are increasing in cost making it less affordable not only to build new homes but to remodel existing homes or rebuild after a partial or total loss. This is a big concern of course for everyone especially our local community that is still in the process of rebuilding after the 2020 fires. As the new fire season is upon us again, it is time to make sure you review your homeowner’s/landlord or commercial building insurance to make sure you have enough coverage to adjust to this increase as most insurance companies replacement cost estimates are not yet catching up with it.

These price increases are affecting new home construction for sure. If you already own your home, you might not think these increases affect you but they have a direct relation not just with your rate but also the settlement amount you could receive from an insurance company in case of a loss. This is mainly because of something we call the “co-insurance clause”


What is Co-Insurance?

Most replacement cost insurance policies require that your home be covered for the right replacement cost amount. This is the amount it would cost to rebuild your home.

The Co-insurance clause on your policy requires that your home be covered for a percentage of your home value. Most insurance companies require 80%. If your home is not insured for at least 80% of its value, you may not get the full replacement cost of your home. Increasing construction costs definitely contribute to the increase of the replacement cost of your home and therefore put you at risk of not meeting the co-insurance clause requirement.

The way to avoid falling short is to review the coverage on your homeowner’s, landlord, and business property policy every time you make any changes, upgrades, … and every time construction costs go up. The policy renewal is a good time to have this conversation with your agent and request to review the replacement cost and make sure the coverage amount is increased to adjust for this rise.


Extended replacement cost

Another way to make sure you have enough coverage and don’t fall short on your coverage is to inquire about the Extended Replacement Cost clause on your policy. The Extended replacement cost is a clause on your policy that guarantees to increase the coverage by a percentage to cover extra rebuilding cost increases that are outside your control. It is important to find out if your policy includes this clause and discuss the percentage options. Most companies offer 25% to 50% and some even offer 100% extended replacement cost which would double the coverage on your policy in case of a loss.

Adding this clause or increasing the percentage often comes at a small cost so it is important to have this discussion with your agent and request a quote for different levels for extended replacement cost.

If you have not reviewed your homeowner’s policy in a while, this year should be the year you must consider doing so. A quick phone call to your agent could save you a lot of hassle and frustration in case of a claim.

Please call us at Ashland Insurance to review your insurance coverage anytime. We are here to help make sure you, your family and your property are well protected.