If you recently opened your home insurance bill and noticed it’s significantly higher, you’re not alone. In fact, homeowners across the country are facing rising home insurance bills regardless of their insurance company.
The good news is that this happens to make sure you have enough coverage.
Why is my home insurance bill so high?
Short answer: It is more expensive to rebuild your house due to rising construction costs.
The cost to rebuild your house is more expensive now than when you bought your insurance, not because you changed anything, but because the cost of building materials has increased dramatically since the 2020 coronavirus pandemic.
To be specific, within most standard home insurance policies there is a coverage called Coverage A (creative name, right?). Coverage A is what protects your house and attached structures, which may include an attached garage, breezeway or deck. If your home is destroyed in a covered catastrophe, your insurance company (under Coverage A) agrees to cover the cost of rebuilding it up to the limit of your policy.
When you purchased your home insurance policy, your coverage A limit was determined and used as part of the calculation of your payments. The estimate was based on several things, including costs of building materials, labor and even debris removal at the time.
However, because the cost of lumber and building materials has increased tremendously, the cost of rebuilding your house may exceed the amount of your coverage A limit.
This can leave you covering a large portion of the remodeling costs, and no one wants that. To avoid this, insurance companies recalculate the cost of rebuilding your home and increase the coverage amount A to cover these higher construction costs. This results in higher bills to compensate for the increased coverage amount.
Are you ready for an example?
Let̵7;s say you bought a nice little house in 2017 for $150,000. You went to your independent insurance agent and they plugged in the information they needed to calculate your coverage A limit for your home owner’s insurance. They ask about the materials in your home, how big it is, etc., and calculate your coverage A limit at $200,000. You walk away with your policy and get on with life.
Let’s say a terrible storm blows through your county last night and destroys your house. If your policy was not updated, you have $200,000 to rebuild your house. However, since construction costs have increased, it is determined by the contractors that they will need $230,000 to rebuild your house. This leaves you with a hefty bill, which is exactly what we’re trying to avoid by increasing your coverage limits A.
How big of an increase should I expect to see on my bill?
There is no set percentage increase or how much homeowners can expect. Some things that will affect the amount of increase you experience include:
- Where do you live
- How long ago you bought your home insurance
- Remodeling project in the home
- Major home improvement projects
- Other physical changes to your house that may affect the value
We know it’s never fun to get a bill that’s higher than expected, but this increase is to make sure your insurance includes enough money to rebuild your home. Every remodeling situation is unique, so there really isn’t an exact dollar amount to expect.
Why did the construction and labor costs become so expensive?
It is a combination of increased demand from home projects during the pandemic and shutdowns of manufacturing during quarantine. Basically, the demand for materials increased while the supply decreased. Which is not exactly what you want to happen.
Is there anything I can do to lower my bill or reduce the impact?
The best thing you can do is verify the information used to calculate your new coverage A limit. Specifically, you will want to look at the size and construction materials used in the calculation. The best way to do this is to talk to your agent. Above all, make sure you have enough coverage.
Is there anything I can do to prepare?
- Keep track of maintenance
- Update your agent on any improvements to your house
- Talk to your insurance company’s customer service if you need to change your payment plan
Should I consider switching insurance companies?
As the increased costs of materials and labor affect insurance companies across the country, switching providers may not help you find cheaper insurance.
If you have more questions or concerns about your new bill, your independent insurance agent will be happy to review it with you. Disclaimer: The analysis of coverage is in general terms and is superseded in all respects by the insurance agreements, endorsements, exclusions, terms and conditions of the policy. Some of the coverage mentioned in this material may not be applicable in all states or may need to be modified to conform to applicable state law. Some covers may have been removed or modified since the publication of this material. Contact your local Independent Bolder Insurance Advisor for more information.
This article is courtesy of Auto-Owners Insurance, a Bolder Insurance partner.