Homeowners urged to review insurance policies amid rising construction costs

Dan Seiffert SVP, Accounting | realtors.com

The recent impact of Hurricane Helene has brought attention to a critical question for homeowners: Is their insurance sufficient to rebuild in the event of damage? According to Spencer Houldin, an experienced insurance broker in Washington Depot, Connecticut, many homeowners may not be as covered as they believe. He notes that about 35% of new clients are underinsured.

A survey conducted by the American Property Casualty Insurance Association in 2022 revealed that most insured homeowners have not adjusted their coverage to match inflation and rising building costs. Only 30% had increased their coverage accordingly, and less than half updated their insurance after renovations.

Between 2019 and 2023, construction material costs rose by 40%, with labor costs increasing by 16%, according to CoreLogic. This has left many homeowners underinsured. Jeffrey Burns from Premier Sotheby’s International Realty observed complacency among some homeowners who assumed minimal insurance would suffice. Burns noted that many local owners affected by Hurricane Ian opted to sell damaged homes due to insufficient insurance for rebuilding.

Homeowners should ensure their policy limits reflect actual rebuilding costs rather than market value, which might differ significantly. Insurance agents use models for replacement-cost estimates but may not account for costly upgrades. Policies include inflation-guard protection, but it might not cover full rebuilding expenses.

Meeting with an insurance agent annually is recommended for updating policy limits and notifying them of any home updates or remodels that could affect rebuilding costs.

Most policies include replacement-cost coverage for personal property but may exclude the dwelling itself unless guaranteed replacement-cost coverage is purchased. This type of coverage ensures complete rebuilding even if costs exceed policy limits.

For condominium owners, reviewing association documents is crucial to understanding individual responsibilities versus those of the association in case of casualty loss. Associations should have adequate insurance and reserves; otherwise, unit owners might face special assessments.