If you’ve recently taken on a DIY home improvement project or have looked at hiring someone to do the work for you, you’re likely familiar with the rising cost of building materials. With this sudden hike in prices, have you thought about when you last evaluated how much it would cost to rebuild your home? If not, now’s the time!
Building Material & Labor Costs
From strong demand and short supply to additional economic factors, the cost of building materials and labor continues to rise. These developments can affect your home insurance coverage in two key ways:
- Insurance rates may increase
- Existing coverage may not be enough to protect your home and finances in the event of a loss
Before we dive into replacement cost coverage, let’s take a look at what’s causing the cost of building materials to rise.
- New guidelines are creating supply chain issues and shortages across several industries.
- As more people are staying home, money that would have been spent on things like vacations is now going toward home improvement projects – this includes stimulus money.
- A growing demand for single-family homes.
- Historically low-interest rates.
These are only some of the factors affecting common building materials and labor costs. So, what do these price increases mean? If you were to suffer a loss and submit a claim with your homeowners insurance, the cost to indemnify you would be significantly higher than it would have been only a year ago.
Cash Value vs. Replacement Cost Coverage
When it comes to insuring your home, it’s important to know you have options. Understanding the difference between actual cash value and replacement cost coverage is crucial when determining how best to protect your home. Actual cash value is the amount equal to the replacement cost minus depreciation. Whereas replacement cost covers the total amount to replace your home, personal property, etc. with a brand-new, equivalent of what is lost, without deducting for depreciation.
Protect Your Home with the Right Coverage
This situation isn’t all gloom and doom – as previously stated, you have options. Even with the rising costs in building materials and labor, many homeowners have been surprised to learn that their existing coverage is inadequate. That’s what you have us for. We can help you find the right amount of coverage that reflects the current cost of building materials without overspending. We also advise homeowners to have their home evaluated once a year to ensure adequate coverag