Property Insurance Limits Must Rise with Construction Costs Construction costs are surging.As a result, rebuilding is much more expensive than it used to be – and that means that property insurance policies may need to be adjusted for higher limits.Homeowners and business orders should act now to make sure their property is fully protected.

Lumber Costs Are Driving Construction Costs Most people probably don’t spend much time thinking about the cost of lumber, but surging prices should be of concern to homeowners and business owners.Lumber prices reached a record of nearly $1,200 per thousand board feet, according to a Business Insider report from April 2021.Prices have increased more than 250% in the last year.

Other building materials have also experienced price hikes.According to Construction Dive, an analysis of BLS data from the Associated Builders and Contractors shows that iron and steel prices increased 15.6% between January 2020 and January 2021.The price hikes can be attributed to many factors, including COVID-related production issues and supply chain problems, as well as the devastating wildfires that have hit the West Coast.

The impact on the construction industry has been significant.The National Association of Home Builders says that new home prices have increased by $36,000 because of rising lumber costs, and Realtor Magazine says that homebuilding has slowed despite an increase in buyer demand.   The Impact on Insurance Property Limits When purchasing property insurance, it’s important to make sure your limits are high enough to cover the value of your property.Insurance policies can work on a replacement cost or actual value basis.

When actual value is used, the insurance payout is based on the current value of the property that has been damaged or destroyed.When replacement cost is used, the insurance payout is based on the cost to repair or replace the property, which may be higher than the current value.Replacement cost is typically considered to be better.

However, it’s still important to make sure 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 that is valued at $1,600,000.

You purchase insurance, and you think your coverage is adequate.Then construction costs rise in your area.When your property is destroyed, you discover that it will cost $1,800,000 to rebuild your property.

Your limits are too low, so you’ll have to cover the difference out-of-pocket.Some insurance policies have provisions that can provide some relief.According to the Insurance Information Institute, a guaranteed replacement cost policy will pay whatever it takes to rebuild after a disaster.

This can be important because construction costs can surge after a widespread disaster, such as a wildfire or hurricane.An extended replacement cost policy, on the other hand, will pay an additional amount over the limit if construction costs rise.This amount may be 20% or more, depending on the terms set by the insurance company.

Check Your Insurance Coverage With construction costs rising around the country, this is a good time to check your property insurance coverage.Your BNC insurance agent can help you determine whether you need to raise your limits.Contact us to learn more.