I think it is safe to say most people are not a stranger to the price increases we have all faced lately as consumers. One of the biggest price increases we’ve seen has been to the cost of building materials. Along with building materials, the cost of hiring a contractor is equally inflated. Because of this, property insurance rates have begun to skyrocket over the past year. The average consumer feels the impact of these price increases, along with the impact of price increases on virtually all other goods and consumables. Consumers are looking to cut expenses, as most people haven’t been earning an amount of money that is proportionate to the increased cost of living. Insurance is not the place to cut expenses, as it could leave you in a terrible situation if you do not have enough coverage.
The increasing cost of building materials has had a large impact over the past few years. It all started with COVID-19 shutdowns. As businesses began to close down to abide by state restrictions, thousands of people relied on unemployment income and benefits related to the pandemic. Once businesses were able to open their doors again, they couldn’t get people back in to work. This caused several supply chain issues. There have not been enough workers to manufacture enough goods to meet the demand and not enough workers to transport the goods that weren’t being manufactured. Because of these issues, the cost of lumber, drywall, asphalt shingles,
Along with the cost of building materials, the cost of labor has been steadily increasing for a number of reasons. As of January 1, 2023, the minimum wage in the Commonwealth of Massachusetts was increased to $15.00. It has been increasingly difficult for companies in all industries to find skilled workers for the past couple of years. It seems as if everywhere you look, you see a sign that says “Now Hiring”. These two reasons, along with increases to the cost of living have caused a relatively large increase in the cost of labor. If it costs more to do everything, people have to make more money. In order for people to make more money, companies have to pay
Insurance companies are no stranger to the increased cost of labor. In fact, insurance companies were largely affected by shortages of workers. Insurance companies also have had to increase employee salaries in order to maintain their staff and continue to provide employment for skilled workers. When you combine this with the increased cost of property values, operating costs, and increases to claim payouts, it is easy to see that insurance companies can begin to lose money very quickly. When insurance companies lose money, rates go up.
It is very easy for one to think, “Insurance rates are up - how can I save money on my insurance?” Here is the problem with this logic: the cost of building materials is up and the cost of labor is up. You now need MORE coverage in order to be able to rebuild after a loss. Underinsuring your home can be very costly during a claim. If your house burns to the ground and you are underinsured by $100,000, that is $100,000 that has to come out of YOUR pocket to finish building the home.
In the example above, I discuss the financial hardship one can encounter after a total loss. For most, they feel it will never happen to them. A more common example may be a severe windstorm that rips a portion of your roof off and allows rain water to enter the home causing tens of thousands in damage. Most people would assume that as long as the claim is caused by a covered peril, the damage would be covered. The issue here is the co-insurance clause that property policies contain. Most companies will require you to cover the home for 100% of the replacement cost. Some will allow you to insure to as low as 80% of the calculated replacement cost. Co-insurance clauses typically state that if a home is insured to less than 80% of the replacement cost, they will only pay that percentage of the claim. For example, if you carry 50% of your home’s calculated replacement cost and have a $100,000 claim, your policy will only pay 50% of the loss less your policy deductible. Assuming your policy has a $1,000 deductible, the scenario above would only provide you with $49,000 to repair $100,000 worth of damage.
It is extremely important to review your Homeowners Insurance with a professional to make sure you are carrying enough coverage and also have a competitive rate. Cutting coverage to save on money is typically a terrible practice. If you can’t afford the coverage, how can you afford the financial hardship after a loss? Picking the right insurance agent is key. Independent agents have access to several carriers and can provide different options for you to better satisfy your needs. Nobody wants to overspend on anything, but I will always argue that proper protection is important.