Construction costs increase. As a result, remodeling is much more expensive than before – and that means property insurance may need to be adjusted for higher limits. Homeowners and business orders should act now to ensure that their property is fully protected.
Timber costs drive construction costs
Most people probably do not spend much time thinking about timber costs, but rising prices should be of concern to homeowners and business owners.
Timber prices reached a record high of nearly $ 1,200 per thousand foot, according to a Business Insider report from April 2021. Prices have risen more than 250% in the past year. Other building materials have also experienced price increases. According to Construction Dive, an analysis of BLS data from Associated Builders and Contractors shows that iron and steel prices increased by 15.6% between January 2020 and January 2021.
Price increases can be attributed to many factors, including COVID-related production problems and supply chain problems, as well as the devastating forest fires that have hit the west coast.
The impact on the construction industry has been significant. The National Association of Home Builders says new home prices have increased by $ 36,000 due to rising timber costs, and Realtor Magazine says housing construction has slowed despite increased demand from buyers.
Impact on Insurance Property Limits
When buying property insurance, it is important to ensure that your limits are high enough to cover the value of your property.
Insurance can operate at a compensation cost or actual value. When the fair value is used, the insurance payment is based on the current value of the property that has been damaged or destroyed. When compensation cost is used, the insurance payment is based on the cost of repairing or replacing the property, which may be higher than the current value.
Reimbursement costs are generally considered to be better. However, it is still important to make sure that your limits are high enough. As construction costs rise, many property owners may need higher limits to achieve full protection.
Imagine you have a property valued at $ 1,600,000. You buy insurance and you think your coverage is adequate. Then construction costs in your area will rise. When your property is destroyed, you discover that it costs $ 1,800,000 to rebuild your property. Your limits are too low, so you have to cover the difference in your pocket.
Some insurances have provisions that may provide some relief. According to the Insurance Information Institute, a guaranteed compensation cost policy pays everything required to rebuild after a disaster. This can be important because construction costs can increase after a widespread disaster, such as a wildfire or hurricane. An extended compensation cost policy, on the other hand, will pay an extra amount across the border if construction costs rise. This amount can be 20% or more, depending on the terms and conditions set by the insurance company.
Checking your insurance coverage
As construction costs are rising around the country, this is a good time to check your property insurance reporting. Your BNC insurance agent can help you decide if you need to raise your limits. Contact us for more information .