Skyrocketing building costs, led by lumber costs three times their average pre-pandemic price, have left some homeowners with inadequate insurance coverage should they need to rebuild after a natural catastrophe.
“These days, building materials are up across the board. It may cost more than usual to rebuild your home should that need arise,” wrote Maurie Backman for The Motley Fool investment website. “That’s why it’s so important to make sure your homeowners insurance policy provides enough coverage in the event of extreme property damage. If it doesn’t, you could end up in a bad situation if your home needs to be rebuilt.”
Dallas ABC affiliate WFAA reports that a shocking two-thirds of homeowners currently do not have adequate insurance coverage and that in an event of a rebuild those homeowners are a shocking 22 percent short on their replacement cost.
“With record rises in material costs, even if you updated your policy a year ago, your coverage may not be adequate if your home suffers major damage,” reported WFAA’s Jason Wheeler. “A big part of the problem is the surging cost of building materials, many items rising at record pace.”
If you have not been in the market for a new home or doing some remodeling the past year you may be surprised at just how quickly building costs have escalated.
Lumber, for example, has risen so much since just December 2021 that the price jump has added $18,600 more to the average price of a newly built home, according to the National Association of Home Builders.
“There are several reasons behind the inflation, but it’s mostly that sawmills can’t keep up with demand. Sawmill output dropped at the start of the pandemic and while it has recovered some, it is still plagued by labor shortages. Compared to the increase in housing starts, sawmill output is significantly behind,” reported CNBC.
WFAA reported that the following was factoring into soaring construction costs:
“The Insurance Information Institute just announced that the cost to replace your home has gone up by 13.6 percent. Considering all of that, if something happens to your house and you have to rebuild, do you have enough insurance?” asked WFAA.
The Insurance Information Institute says that “for many people, their home is their greatest asset, so it is crucial to avoid being underinsured.”
To properly insure your home, it is important to ask your insurance professional the following essential question: “Do I have enough to rebuild my home?”.
As the Insurance Information Institute explains: “Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it.”
So, in the event your home was severely damaged or even destroyed, here are the considerations, according to the Insurance Information Institute, that you need to determine if you have enough insurance to rebuild your home:
Also keep in mind that in addition to insurance to pay for the rebuild of your home, you will need to make sure you have insurance that covers your home’s possessions plus coverage that pays for additional living expenses during a rebuild.
“Homeowners insurance is an unavoidable expense for anyone who owns property,” concludes Backman. “And it's an expense you may want to save as much money on as possible. But while it's okay to shop around for different premium rates, one mistake you shouldn't make is skimping on replacement cost coverage -- especially these days, when replacement costs may be higher than usual. Doing so could leave you in a serious lurch if your home sustains extreme damage, and that's not a risk you should be willing to take.”
Contact Dean and Draper today to make sure you have enough insurance coverage to protect your home and other valuable assets.
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