Why is my investment property building limit increasing?
One of the most important things to know when you own a home or an Investment Property is to make sure you have enough coverage on your building in the event of a total loss. Your Agent or Insurance carrier should perform an annual replacement/reconstruction cost analysis to confirm you have enough coverage to rebuild your structure/building in the event of a catastrophic event, like a fire that results in a total loss. Reconstruction cost value is the cost to replace or rebuild a home to original or like standards at current material and labor costs. Over the last few years, we have experienced large increases in labor and material costs as well as a shortage of skilled artisan contractors, this all creates a large increase in building coverage replacement cost analysis.
Verisk Analytics, a data and risk assessment, recently reported that the total reconstruction cost increased again from January 2020-2021 by 9.1%. Most of the increase comes from increasingly high lumber prices showing a growth of 84%! This is the result of a high demand market with an increase in building activity and supply shortages due to the pandemic in the earlier 2020.
Furthermore, contractors are incurring higher costs not calculated before the Pandemic such as delayed material deliveries, higher expenses for personal protective equipment and sanitation measurements, and shortages of employees due to covid exposure.
Reconstruction cost is also affected by each city’s new requirements and expenses associated with updating the dwellings to meet current building ordinances. For example, in many counties in Colorado new roofing codes will require a class 4 asphalt shingle roof to protect the home against large hailstorms.
Climate change has also affected the property insurance market and the reconstruction cost with the several wildfires in the west that have burned millions of acres as well as tornados and hailstorms in other parts of the country. The high demand to rebuild will be reflected on the cost of labor and materials nationwide.
Insurance companies have to adjust to the new reconstruction rates year after year to calculate their premium and forecast their future claim volume. If you would like to have a complete reconstruction cost analysis, contact your agent to make sure you are appropriately covered. I can also work with you on your reconstruction costs for your investment properties and buildings.
- The home replacement cost is the amount it would take to rebuild your home with similar materials if damaged or destroyed.
- Insurance companies will use interior features, external features, types of flooring, roofing material, personal belongings, code changes as parameters to calculate home replacement cost.
- Replacement cost or reconstruction cost are based on the current cost of labor and materials & supply demand.
- As a result of Covid-19 reconstruction, costs have been affected due to the higher demand and shortage of material and labor.