Construction costs are on the rise due to soaring lumber prices and the cost of other raw materials.
- Between 2010 and 2020, the median sale price of a new home increased $106,100.1
- Lumber prices have increased 340% from a year ago and are up 67% this year (from January 1 to April 30, 2021).2
- The increase in lumber prices over the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB.2
If you already own a home, you may not think these cost increases will affect you. However, they have a direct impact on the amount of insurance you should have on your home.
If your home were to be destroyed by fire or another covered loss, you need to have the right amount of insurance to cover the cost to rebuild your home (the “replacement cost”). This amount is different than market value (the amount you could sell your home for).
Making sure you are properly insured:
- Understand your policy. Is your home insured for replacement cost, or does your policy have a co-insurance clause? This information is usually located in the “conditions” section of your policy. Not sure how to understand the policy requirements? Reach out to your insurance advisor for assistance.
- Know the current replacement cost of your home. You should insure your home for replacement cost (the amount it would cost to rebuild your home). Because construction costs can change rapidly, it is important to assess the replacement cost on a regular basis to ensure you have the right amount of insurance. We recommend evaluating the replacement cost every one to two years.
- Purchase the right amount of insurance. Meet with your insurance agent to discuss your homeowners policy and keep them up to date on improvements you make to your home. They can help ensure you have the right amount of coverage.