Construction Costs Are Skyrocketing!

Increased Building Costs & Your Insurance | Excalibur Insurance

June 17, 2021


The Cost of Building Materials is Increasing…How Does That Impact Your Home Insurance?

The housing market has been seriously complicated over the last few years. This is in part due to the demand for properties, pushing prices upwards, but it also has to do with the cost of building materials. In short, the cost of plywood, lumber, and other common building materials are increasing.

Metals are even becoming more difficult to obtain. Many domestic steel mills were forced to close their doors. During the initial period of the pandemic and the first lockdowns, nothing was being built due to the shutdowns and so the market was stable. However, because construction has re-started, the demand has reignited, but many metal mills remain closed. Some that are starting to reopen are unable to meet the current demand due to the toll the previous lockdowns have caused.

In short, due to the COVID-19 pandemic-induced lockdowns, many material suppliers were forced to shut down, and several even went out of business altogether. With a high demand for new housing in the United States and Canada recently and low supply, material pricing has soared in just over a year.

Moreover, material costs are expected to increase even more this year. According to a recent analysis, there has been a jump in reconstruction costs between May 2020 and May 2021 of nearly 6.4%.

So, what does that mean for your home insurance?

Your home may be underinsured.

Underinsurance means your coverage limit is not sufficient to replace your home with one of a similar size, construction quality, and features. With the rise of building costs, your home may now be underinsured.

For example, say your home was damaged from a fire, either partly or was destroyed. The replacement cost of your home would pertain to the current cost of building materials – the very same ones that have increased immensely over the last year and more. Your plywood floor? Maybe you paid $30 to $40 dollars per sheet when you first installed it, but now those panels are worth double. Your current insurance building limit may find it difficult to absorb these increased material costs with your current home replacement limit.

This can be financially devastating. With the increased replacement cost, now you are suddenly in the hole for the remaining amount – the amount you would need to pay out-of-pocket for because the claim payout was far less than what your home required to be rebuilt or repaired.

So how do we remedy this? How can we alter our insurance limits to reflect the current status of rebuild costs for our homes?

It’s time to re-evaluate the value of your property.

An insurance appraisal every now and again is beneficial to ensure you are insured adequately for everything you own, and your coverage limits reflect the total value of your belongings, property, and liability. You should not depend on your property assessment value – used to calculate your tax rate – nor your realty assessment value (the total value your property might sell for on the market.) This does not account for current reconstruction costs. To get a better idea of what the current value of your home would be to rebuild entirely as it stands today, discuss with a professional replacement cost appraiser to do an appraisal of your property. This accounts for the following factors:

  • Any site improvements
  • Possible debris removal and demolition
  • The current cost of building materials
  • Labour rates
  • Bylaw adherence
  • Architectural expenses
  • Fire and building codes
  • Inspection and permit fees
  • In addition, any roadways, sidewalks, fences, landscaping, or exterior lighting

It is important to have an accurate estimate of all the odds and ends to ensure that you are covered for all the reconstruction, debris removal, and any necessary site improvements in the event of total disaster. Otherwise, you could risk having to pay out-of-pocket, or not have enough funds on-hand to account for the difference.

Once you have had an appraisal done, it might be time to adjust your coverage.

Review and update your coverage accordingly

The increase in building material costs is no small thing. With some materials having doubled in price due to high demand for new housing and low supply, it might be time to adjust the limits of your insurance coverage for you and your family’s home. Call up your broker to discuss the potential of updating your policy according to the new value after your insurance appraisal so that you can have peace of mind knowing that your home is covered for any potential losses.

If you are waiting on an insurance appraisal or still uncertain as to how you want to go about re-establishing the total value of your property and its belongings, do not hesitate to call up your insurance broker. They may advise to take other actions to avoid you being left underinsured in the event of disaster. Chances are, we will already have a plan for you – as you are definitely not the only one facing the issue of increased building costs!

Will this impact my home insurance rates?

To come to the point, yes. More coverage may mean higher rates. However, there are ways you can reduce your rates without risking being underinsured by slashing necessary coverage. For example, you can raise your deductible if you are comfortable with having to pay a higher out-of-pocket cost in the event you have to make a claim. You can purchase your auto and home insurance through the same insurance provider or install approved anti-burglary devices or security systems in your home.

Your insurance broker is your best resource when it comes to advice on reducing your rates. Give Excalibur Insurance a call today to discuss the replacement value of your home and how you should go about updating your coverage to reflect the new heights of reconstruction costs or ask us about how you can save on your home insurance rates.