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Building and Labors Costs are Rising - Are You Insured Properly ?
Wednesday, June 16, 2021
Are your home and outbuildings properly insured to value? Would your policy cover the amount needed to rebuild at today’s high construction cost?
In early May 2021, lumber futures were trading four times higher on the Chicago Mercantile Exchange than at the same time a year prior. Verisk, a leading global data analytics provider, estimates that combined hourly retail labor costs for the construction trades they track were up almost 4%+ April 2020 to April 2021. This means the average cost to replace your home or outbuildings has gone up too.
Countrywide, total reconstruction costs, including materials and retail labor, were up 8.12% + from April 2020 to April 2021. In several states, the replacement cost may have increased almost to 12% during the same time period.
Now is a good time to review your insurance policy with your insurance agent to ensure you are properly insured. Keep in mind, the cost to rebuild is not based on the price you paid for your home, the real estate value in today’s market, or even the cost of new construction.
What if you are underinsured?
If your business is underinsured and a loss occurs, it may be impossible to keep the doors open. One FEMA study showed that a full 40% of businesses never reopen after a disaster. A comprehensive and appropriately valued insurance program, combined with proactive business continuity planning, are keys to resiliency in the face of a disaster.
Did you know that if you insure your property for less than the amount you are required to insure, your insurance company may impose a “coinsurance penalty” once a claim is filed? The actual replacement cost value of your property is determined at the time of the loss. If the replacement cost is higher than the policy’s coinsurance percentage, the claim payment may be reduced. Consult with your insurance agent to learn more about this potential clause in your policy.
Tips when reviewing your policy with your agent
- Meet annually with your insurance agent to review your insurance. Focus specifically on property coverage limits, deductibles, and coinsurance requirements.
- Ask your agent about Disruption of Farming insurance, which compensates you for lost income and covers operating expenses if your business has to temporarily shut down after a covered disaster.
- For owner-occupied dwellings, ask about guaranteed replacement cost. This coverage may be available to owner-occupied dwellings less than ten years of age.
- Maintain current photos and video inventory of your premises, equipment, inventory, supplies, etc.