A surge in home construction prices has been an ongoing story in 2021. A pandemic-induced supply chain disruption, inflation and labor shortages have contributed to a 15-year high for home construction backlog. While housing construction activity is expected to be bogged down in the short-term, there is some optimism for a return to normalcy in 2022.
As a homeowner, it’s worth reflecting what a spike in construction costs could mean for you. If a problem like a natural disaster or fire destroys all or part of your home, your bank account could also take a serious wallop without the right level of coverage.
Buy Coverage That Absorbs a Spike in Home Repair Costs
The dwelling coverage within a home insurance policy pays to repair or rebuild your home if it’s damaged by a problem covered by the policy, like a house fire.
Your dwelling coverage amount should be based on what it would cost to rebuild your home based on the local construction and labor costs. But certain situations, like a tornado that flattens entire neighborhoods, can cause a spike in rebuilding costs. Suddenly your dwelling coverage amount could be insufficient.
Fortunately, some insurers offer home insurance with extended or guaranteed replacement cost. These optional coverage types absorb a spike in construction costs by adding extra coverage to your dwelling insurance limits when needed.
Companies that offer extended or guaranteed replacement cost coverage include AIG, Auto-Owners, Chubb, Cincinnati, Erie, Farmers, Hanover, Lemonade, Nationwide and QBE.
Keep Home Insurance Afloat
If you want home insurance for all types of water damage, you’re going to need to plug some major holes. Here are a few things to consider:
Don’t Underestimate Your Flood Risk
It’s estimated that only 15% of homeowners have flood insurance. But many homes are at risk for flooding, possibly even your home. Floods are the most common natural disasters in the U.S. and 99% of counties were impacted by floods between 1996 and 2019, according to the Federal Emergency Management Agency (FEMA).
Going without flood insurance can be very costly and potentially devastating. Most folks get flood insurance through the National Flood Insurance Program (NFIP), but you can also get a policy through the private market.
And if you already have a policy through the NFIP, you may be pleasantly surprised. FEMA’s flood insurance rates have recently undergone a new pricing system, and some homeowners can take advantage of reduced rates.
Small Drops Make Up an Ocean
Floods aren’t the only water problem to threaten your home and savings. Home insurance covers certain water damage and leaks, but not all types of water damage. Here are some tips to help you stay dry:
- Get smart. A water-leak detector can alert you via smartphone if there is a leak or a freezing pipe is about to burst. A water-leak detector can not only help reduce claims and shelling out for an insurance deductible, but you might also qualify for a home insurance discount.
- Fortify your home. If you live in a storm-prone area, you can take steps to make your home strong enough for a hurricane and reduce roof leaks and damage from wind-driven rain.
- Shore up your coverage. You can buy more coverage types to safeguard your home against water damage. For example, you can typically add coverage for sump pump failure and sewer backup.
Don’t Assume You’re Covered for Natural Disasters
Floods are not the only disaster commonly excluded from a standard home insurance policy. If you live in a disaster-prone area, you might need to bolster your home insurance with endorsements or additional policies to ensure you’re fully covered.
For example, you may need to augment your hurricane insurance plan with a separate windstorm policy in some coastal areas. Or if you live in an area with seismic activity, you may want an earthquake insurance policy.
Before you buy another policy or add an endorsement to your home insurance, it’s a good idea to speak with your insurance agent in order to understand the options. Insurance for natural disasters can have complex limits (such as different limits for categories of property), exclusions and high deductibles.
Know How Much Stuff You Have
The personal property coverage in a home insurance policy pays to repair or replace belongings—your clothes, jewelry, furniture, pots and pans, musical instruments, electronics, books, art, and even the decorations and knick-knacks you keep on your shelves.
But how much personal property coverage do you need? One good way to find out is by creating a home inventory. A good home inventory can both speed up an insurance claim and help maximize your claim payment. If you forget what you owned, you won’t make a claim for it.
It’s one of the smartest and easiest things you can do to prepare for unexpected home insurance claims.
Bump Up Your Liability Coverage
With so much focus on your house and belongings, it’s easy to overlook liability coverage within a home insurance policy.
Liability insurance pays for a legal defense, judgments and settlements if someone sues you over injuries or property damage and you’re legally responsible. For example, if someone takes a bad fall at your house, a lawsuit would fall under your homeowners liability coverage.
A good rule of thumb is to buy enough liability coverage to cover your assets, or what you could be taken from you in a lawsuit.
Another option to ensure you have adequate liability coverage is to purchase an umbrella insurance policy.