Your Home’s Market Value vs. Replacement Costs
If all things were equal, the cost of re-building your home today would have plummeted along with your home’s market value. But equality is not a key principle of economics, so while U.S. home values are still depressed, the cost of building materials and labor has continued to climb. Translation: Your home may be worth less today than it was two years ago, but it would cost more than ever to rebuild if it was destroyed or heavily damaged by fire or another disaster. As a result, your homeowners’ insurance premium may still be increasing a bit each year to stay abreast of these costs.
Why Re-Building Costs More
Rarely does the cost of building materials go down. Demand is often greater than supply, so prices rise. Between 2007 and 2008, for example, figures amassed by well-respected consultants to the insurance industry show that the cost of rebar, the thin steel bars used to strengthen concrete, rose almost 49%. Steel studs, sometimes used in place of wood, rose almost 19% in price during the same time period, and PVC pipe rose more than 11%.
Increases in the cost of labor during the same year were not as dramatic, but still continued to climb. Roofers charged nearly 6% more, painters increased their rates 5.8%, and plumbers went up by 5.5%.
But before reconstruction work can even begin, removal of debris created by your loss must be removed, and depending on local ordinances, this can be costly. Items such as aluminum, copper wiring and piping, and wood may have to be sorted and recycled at different locations. Concrete and brick wreckage may have to be disposed of at restricted sites for which an access or dumping fee is charged.
Disposal, reconstruction materials and labor aren’t the only costs involved in rebuilding your home. Older homes and those considered historic or vintage often have features and workmanship that may be difficult or impossible to reproduce. Craftspeople skilled in the art of restoration may have to travel long distances to work on your home, and their rates are usually expensive.
There are still other costs, too. Landscaping and house positioning can make access difficult for trucks bearing materials, thereby increasing labor time. Existing homes also present hazards in the form of underground and overhead wiring that must be considered when digging or planning access. Knowing all these considerations, it’s easy to understand why rebuilding is almost always more expensive than new construction.
How to Best Protect Your Home
Don’t risk your financial well-being by being underinsured. More than one report has shown that as many as two-thirds of American homeowners could be making this expensive mistake. Many of the insurance companies that we represent automatically increase your home coverage each year to help keep pace with these rising costs, however, if you are concerned about being underinsured, please free to call us at Auto and Home Insurance Agency. Some companies such as Chubb and Fireman’s Fund, offer unlimited dwelling replacement coverage if the amount necessary to replace your dwelling at the time of loss is greater than your current dwelling limit. They do require that you accept the annual increase in dwelling value. Other companies specifically limit the additional amount they will pay to help replace your dwelling. This amount typically ranges from 25% up to 100% of the dwelling value, depending on the coverage selected. We can help you calculate current rebuilding costs of your home and help you determine if your coverage is adequate. But don’t leave the situation to chance. By being prepared for the unexpected, you can protect what may be your biggest investment: your home.
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