“Replacement cost” covers the rebuild of a destroyed home, and that option is now more expensive for the same reason new homes are: higher supply costs.
NEW YORK – The consequences of the COVID-19 pandemic reached into a number of industries, including home construction, which faces a shortage of supplies and trained labor. At the same time, demand for new construction or home remodeling is on the rise.
As a result, it costs more to insure a home and, in some cases, prices rose more than inflation.
The Insurance Information Institute (III) found that insurance premiums spiked an average of 20% to 30% during the last year in California, Florida and Louisiana, while the current inflation rate is about 6%. While many economists say the increased costs are transitory, the pandemic continues its wave of disruptions with each new variant that emerges, including omicron, which has spread quickly.
“Home insurance is not tied to the market value of a home, but based on reconstruction cost,” says Jeff Brewer of the American Property Casualty Insurance Association. This means that not only premiums are rising – already $1,400 a year on average – but also some homeowners might not realize that they’re now underinsured.
Mark Friedlander of III said climate change and billion dollar catastrophes are another issue facing homeowners.
“We’re seeing more expensive catastrophic events across the United States this year, including 18 weather disasters with losses that each exceed $1 billion,” he said. Friedlander added that in Florida, only three of its 52 local insurers have shown a profit. Homeowners’ insurance premiums are likely to rise even if policyholders maintain their coverage levels, but homeowners need to re-evaluate the cost of rebuilding a home and ensure they have appropriate coverage levels.
Source: Forbes (12/08/21) Leefeldt, Ed; Danise, Amy
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