The Impact of Increasing Construction Costs on Your Insurance

By now, you’ve inevitably heard talk of, or even experienced, rising construction costs. The cost of materials has increased over the last year and a half and this is affecting the cost of making even minor renovations in your home or business. Even though soaring prices are well-documented, it is essential to watch out for the trend and its implications with your insurance policies.

Replacement Cost Changes

When the cost of construction increases because of inflation or market changes, it also raises the replacement cost of the property. This cost can further increase if a homeowner makes improvements to the property.

These may include;

  • Windows, plumbing, or electrical upgrades
  • Kitchen and bathroom remodeling
  • Adding to your home space
  • Deck, porch, or patio addition
  • Home exterior upgrades

It is worth mentioning that when your property increases in value, you need to adjust the coverage amount on your homeowner’s insurance policy. Therefore, informing your insurance agent is crucial when you make upgrades, so they can update the policy.

Even if there are no renovations or upgrades to the property, you still need to update your insurance policy once a year to keep pace with the increasing costs. If you overlook these changes, it may create problems with filing claims in the future.

To account for increasing costs, many homeowners’ insurers provide options such as an “inflation guard”. In the option, the policy coverage automatically adjusts to match the existing replacement.

Make Sure You‘re Properly Insured

Here is how a homeowner can make sure they have the right coverage amount to avoid getting underinsured:

Understand Your Homeowner’s Policy

Read the conditions section of your insurance policy to find out if your property is insured for any replacement costs. It is better to reach out to your insurance agent to understand your key policy requirements.

Find Out the Current Replacement Cost of Your Home

You must insure your property for the current replacement cost as construction costs change frequently. It’s vital to evaluate the replacement costs regularly to make sure you have the sufficient insurance amount. Evaluating the replacement costs yearly is an ideal way to keep track.

Buy the Insurance Policy You Need

Speak to your insurance agent and discuss how the homeowner’s policy covers you. Also, try to keep your agent updated on improvements you make to the property. They can help you make sure that you have the right amount to cover any damage to the property.

Summing Up

In a nutshell, the last year has seen an increase in the costs of construction materials, which has affected insurance claims significantly. Thus, you need to keep your insurance agent informed regarding any renovations or upgrades. Also, watch out for the rising prices so you can adjust your coverage when needed.