Did you know that the cost of building materials has increased by as much as 180% in just one year? The National Association of Home Builders reported this increase with the trend upward starting in the Spring of 2020.
This rapid rise is attributed to a multitude of reasons, but it boils down to supply and demand: there’s less supply than there should be, which drives up prices for buyers, and builders need more material in order to keep up with demand.
You may be thinking, “Why does this matter to me? I’m not building or remodeling my home, office, or commercial property.” The truth is that this does affect you. You might not be building a new property, but if your home or office sustains damage through fire or other unforeseen circumstances, you’ll need building materials in order to get back on track.
Your property insurance policy might not cover all your needs if you’re underinsured or have incorrect limits on coverage. Not sure how that could be? Let me explain.
Here’s how building material cost increases affects you:
The building limit you buy on an insurance policy is based on the cost to rebuild. If the cost to rebuild increases, the limit you purchased on your policy may not be enough to get it back to the same like and kind before the loss. Even in a market where there is no significant increase in the cost of building materials, there are many people who are seriously underinsured. Add in that the cost to rebuild has gone up dramatically, and the number of people underinsured gets even worse.
So what can you do to protect yourself?
One of the best things is to get a cost estimate for rebuilding your property. Our insurance agency completes replacement cost estimators as part of the marketing process to help determine the proper limit you should purchase on a policy. We can help you address the limit on your insurance policy while typically finding better coverage and cost.
Another way to handle this is to do some simple math to figure out the cost per square foot your current propertly limit provides. To do this, take the building limit on your policy and divide it by the square footage of your building to figure this out.
For example, a 2,500 square foot home insured for $325,000 provides coverage at $130/sq. ft. ($325,000/2,500 sq. ft.= $130/sq.ft.). Depending on the quality and features of the home, that number may not be enough. Custom features and the area the home is located on can make rebuilding costs to be closer to $200 to $225 per square foot.
What You Need to Know About Building Material Prices:
– If building material prices increases continue on their current trajectory, your property insurance may not be enough to cover the cost of rebuilding.
– The limit on a policy is based on what it would take to rebuild your home or office. Failure to take into account rising building material costs can leave you underinsured.
– It’s important that you review your current insurance policy so you can ensure it is the correct limit for your needs.
– It’s better to deal with the issue now than at the time of loss.
The cost of building materials has gone up dramatically in the past year. If your property insurance is set at an incorrect limit, you could be underinsured or have co-insurance penalties not covered by your policy. It’s important to review your coverage and make sure that it meets today’s building material prices so you’re insured properly at the time of loss.