The increasing prices of construction materials have become a threat to many policyholders. Even though soaring prices are well-documented, it is essential to watch out for the trend and its possible implications.
As per the Associated Builders and Contractors analysis, the latest costs of materials has increased by 73 percent since 2020. This change in costs has increased the price of single-family houses by $36,000. In fact, the recent reports indicate that these prices have hit $1,500 per thousand for the first time in the housing market’s history.
Replacement Cost Changes
When the cost of construction increases due to inflation or market changes, it also raises the replacement cost of the property. This cost can further increase if a homeowner makes improvements to the property.
These may include;
- Windows, plumbing, or electrical
- Kitchen and bathroom remodeling
- Finished basement or attic conversion
- Adding to your home space
- Deck, porch, or patio addition
- Home exterior upgrades
It is worth mentioning that when your property increases in value, you need to adjust the coverage amount on your homeowner’s insurance policy. Therefore, informing your insurance agent is crucial when you make upgrades, so they can update the policy.
Even if there are no renovations or upgrades to the property, you still need to update your insurance policy once a year to keep pace with the increasing costs. If you overlook these changes, it may create problems with filing claims in the future.
To account for increasing costs, many homeowners’ insurers provide options such as an “inflation guard”. In the option, the policy coverage automatically adjusts to match the existing replacement.
Here is how a homeowner can make sure they have the right coverage amount to avoid getting underinsured:
Understand Your Homeowner’s Policy
Read the conditions section of your insurance policy to find out if your property is insured for any replacement costs. It is better to reach out to your insurance consultant to understand your key policy requirements.
Find Out the Current Replacement Cost of Your Home
You must insure your property for the current replacement cost as construction costs change frequently. It’s vital to evaluate the replacement costs regularly to make sure you have the sufficient insurance amount. Evaluating the replacement costs twice a year is an ideal way to keep track.
Buy the Insurance Policy You Need
Speak to your insurance agent and discuss how the homeowner’s policy covers you. Also, try to keep him updated on improvements you make to the property. He can help you make sure that you have the right amount to cover any damage to the property.
In a nutshell, 2021 has seen an increase in the costs of construction materials, which has impacted insurance claims significantly. Thus, you need to keep your insurance agents informed regarding any renovations or upgrades. Also, watch out for the rising prices so you can adjust your coverage when needed.