Homeowners insurance premiums can increase for several reasons, but the higher-than-expected increases homeowners are currently seeing are primarily due to inflation. Building labor and material costs are the highest in 40 years. Higher construction costs equate to higher home replacement and repair costs, which ultimately results in increased homeowners insurance premiums to ensure your home is fully covered.
Homeowners insurance premiums can increase for several reasons, but the higher-than-expected increases homeowners are currently seeing are primarily due to inflation. Building labor and material costs are the highest in 40 years. Higher construction costs equate to higher home replacement and repair costs, which ultimately results in increased homeowners insurance premiums to ensure your home is fully covered.
30
%
30
The average increase in construction material and employment costs since Q1 2020.
50
%
50
The increase in construction material costs since Q1 2020.1
7
%
7
The increase in construction employment costs since Q1 2020.2
Since the start of the pandemic, the U.S. has seen major disruption in the economy. This disruption is creating challenges across the home construction industry, affecting everything from the production of goods, to labor, to resourcing—and each of these supply disruptions have ripple effects across the economy. To put it simply, inflation occurs when demand exceeds supply, prices rise — that’s where we find ourselves today.
1. FRED: Producer Price Index by Industry: Building Material and Supplies Dealers
2. FRED: Employment Cost Index: Wages and Salaries: Private Industry Workers: Construction
Inflation in the home construction industry has impacted the cost of many building materials required to restore your home in the case of a loss. These costs continue to rise due to current market conditions and the continuing recovery of the U.S. economy.
As a result of inflation, reconstruction costs rose as high as 22.8% in 2021.1 So far this year, reconstruction costs have continued to increase as much as 20% over last year. To ensure your home is properly insured, your insurance premium needs to increase to cover these increases in rebuilding costs.
We want to ensure you have enough coverage to account for the increased costs of repairs resulting from inflation. Without these necessary adjustments, if something happened to your home, it would not be fully protected. The bottom line: Your house will cost more to rebuild today than it did before the building labor and material increases occurred. Without the necessary increases to your coverage, your home would be underinsured, leaving a gap in coverage.
bridging the inflation-coverage gap
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April 27, 2022
Insurance rates are going up—here’s why
Paying a higher price for something without knowing why can be frustrating. If you’ve noticed an increase in your homeowners insurance premium, a deeper look at why your homeowners insurance is going up might help you understand why — and feel better about paying the bill. Here’s a simple explanation.
March 8, 2022
Insurance and inflation: Looking at the dollars and cents
Inflation may feel more like a topic for economists than one for around the dinner table with friends. Maybe you hear analy…
February 22, 2022
Insurance and inflation: Your questions answered
Understanding how your homeowners insurance policy operates can be challenging enough without the added complexity of inflation. Even if you felt you had a good grasp of your policy when you purchased it, if you don’t stay connected to the details, it can feel like having to go to school all over again when you get your annual renewal packet in the mail – and that’s in a typical year. Lately, things are anything but typical. This year, inflation is having a major impact on the insurance industry, and it’s directly affecting most homeowners insurance premiums.
Here are answers to some of the common questions about inflation and insurance. If you need additional …
According to the U.S. Federal Reserve Bank of Cleveland, “there is inflation when the prices of many of the things we buy rise at the same time and then continue to rise. Explained another way, inflation is ongoing increases in the general price level for goods and services in an economy over time.”
When the U.S. economy experiences significant inflation, the cost of construction, materials (such as lumber or metal), and labor increase. Materials and labor impact how much it costs to re-build your home in the event of a total loss. While SageSure hopes that no one ever experiences a total loss, it’s important to make sure that your policy has enough coverage for the increased costs of re-building your home in the event of a loss.
You may have noticed an increase in the cost of groceries, going out to eat, travel, etc. over the last year. Building materials and construction labor costs have experienced even higher increases, and since these costs have increased approximately 20% across the country over the last year, the coverage on your policy is being increased to cover the increased costs of re-building your home in case you experience a total loss.
The replacement cost of a home considers the materials and labor cost of re-building your home in the event of a loss. Your market value is the price that you could sell your home to a potential buyer and includes the value of the land, the real estate market in your area, and other relevant factors.
The insurance agency you originally purchased your policy from is a valuable resource to help you understand your policy and what coverages you have in place to make sure you are protected. Your enrollment package and policy documents from SageSure have the contact information for your insurance agency/representative. If you need help locating the contact information, you can always reach SageSure at (800) 481-0661.
It is always a good idea to keep your agency (where you purchased your policy) up to date on any changes or improvements you made to your home at least once a year, so that you always have the right coverage limit. Your agency can review any changes with you and adjust coverage limits if necessary.
If you have questions about your policy or any other insurance related inquiries, contact your insurance agency/representative, or call our customer care line at (800) 481-0661. We want to help you understand your policy and feel confident that your home is protected.