home construction

The cost of buying and installing home building supplies is going through the roof, and it may leave you without enough insurance to rebuild should disaster strike.

Lumber and other construction material prices have skyrocketed, and so has the cost of labor as the building industry struggles with a manpower shortfall. These issues are adding significantly to the cost of repairing and rebuilding homes, so much so that some homeowner’s policy limits may not be enough to pay for it all.

Sawmills slowed production in 2020 in response to the COVID-19 pandemic-induced economic slowdown. Meanwhile, stuck-at-home homeowners went on remodeling sprees. The result? Between late October 2020 and early May 2021, lumber prices more than tripled. They’ve dropped from their peak, but they remain more than 50% above the previous levels.

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 find are getting higher wages.

The effect on your coverage

Even if you are not building or remodeling a home, these cost increases are 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 typically designated as the limit for “Coverage A ― Dwelling” on the policy’s information page.)

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.

You may have insured your home for $300,000 in 2019, but today it may cost $400,000 or more to rebuild. Your insurance company is obligated to pay only $300,000, leaving you to come up with the extra $100,000 on your own.

You may not be able to borrow that much on top of your mortgage. You may also have a deductible you’ll have to foot the bill for as well.

What you can do

  • Contact us and ask about increasing the amount of insurance on your home. We can give you a rough idea of the additional cost based on estimates of what it may cost to rebuild your home.
  • While you’re at it, this is a good time to ask us questions about your insurance. Does it provide coverage for rebuilding or replacing 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? It is important to get the answers before a loss occurs.
  • If you remodel or add on to the home, it is essential that you notify us or your insurance company. Your limit of insurance is based on the way your home was, but the home is no longer the same. Your carrier needs to know about changes before it can properly insure you.

There is not much you can do about rising construction costs. However, you can take proactive steps to make sure your insurance will protect you the way you need.