Why Did My Homeowners Insurance Rate Increase?
In order to understand homeowners insurance rate increases, insureds must first understand the coverage they have. The Coverage A Dwelling Limit is the amount your home is insured for in the event of a total loss. When your policy comes up for renewal, your carrier may reevaluate the costs of rebuilding your home. If needed, they will apply a rate of inflation in order to account for increased labor and material costs. Unfortunately, home reconstruction costs are generally higher this year, according to the Associated General Contractors of America (AGC).
Reconstruction Cost vs Market Value
It’s also important to understand the rebuild cost versus the market value of your home. The market value is how much you can sell your home for today. Many factors influence the market value, such as land, comparable nearby sales, schools, and location. On the other hand, the reconstruction cost is only the cost of labor, materials, and debris removal. So, the rebuild cost could be more or less than the market value of your home, depending on the factors specific to your home.
While we hope no one experiences a total loss, it’s important to ensure that your Coverage A limit is correct. Homeowners often unintentionally under-budget themselves, especially if they have never done any remodeling or rebuilding work. There are also things you might not think of, like the cost of demolishing the remaining structure and removing the trash and debris. Additionally, these costs can rise even more in the event of a natural disaster. When multiple homeowners in an area are rebuilding, labor and materials costs can increase due to the high demand.
This is also a great time for a policy review with your agent! There are several factors that influence the estimated reconstruction cost of your home, such as dwelling features and build quality. Your carrier factors in the year built, square footage, quality grade, number of stories, number of kitchens and bathrooms, floor covering, roofing and more! It’s especially important to update your limits to include any upgrades or home improvements that you’ve made.