Home Owners Insurance and Making Sure you are Properly Covered

For this episode, we had a special guest, Kelly Conway with The Conway Insurance Agency - A Premier Allstate Agency. She talked to us about reviewing your home insurance coverage to be sure you are properly covered. This has only become more important with the rise of construction costs and we’re super excited to have an expert with us today to explain the ins and outs. What a wealth of information! 

The cost of building a new home has dramatically increased in the last few years, especially here in central Texas. Between labor shortages and increasing material costs, it’s important to work with your agent to make sure your home is properly insured against rising building costs. First, I like to clarify that when we are looking at insuring a home we are talking about replacement cost. This is strictly the cost of construction and does not take into account market value or the value of the land. In Austin, the location of the property and the value of the land can far exceed what it would cost to rebuild the actual structure on the property.

Although we have seen property values, and subsequently property taxes, increase dramatically in the last two years, this is really not the driver to increasing the Dwelling Coverage on your homeowner's insurance. The real driver is the increased cost of construction.

In 2021, the average for U.S. building materials increased 42.6% annually, based on reporting provided by CoreLogic, Inc. The National Association of Home Builders (NAHB) confirmed tha the cost of lumber is up 340% from 2020. Yes, that is not a typo, 340%!! Labor shortages are also putting pressure on a strained market which is causing costs to increase across the board. Most major insurance carriers use a standard tool to calculate replacement costs. This tool looks at construction type, exterior materials, roof type, quality of kitchen and bathrooms and about 100 other factors to determine an appropriate amount of coverage. The concern, though, is that this tool hasn’t been able to keep up with the accelerated cost increases the construction industry is experiencing.

After speaking with local builders in the area, we are recommending that clients look at insuring their dwelling at a minimum of $200/sq ft. For example, a 2500-square-foot home should be covered with at least 500,000 in Dwelling Replacement coverage. There are still many other factors that need to be taken into consideration, but this a good rule of thumb to start with. Of course, increasing the amount of coverage on the policy is going to result in an increase in premium. Your Agent should be able to discuss options to help offset this increase. For example, you may want to consider a higher deductible. Homeowners insurance is really designed to cover more catastrophic losses, think pipes bursting during a snowpocalypse. Most people aren’t going to run the risk of a rate increase by filing small claims here and there. Smaller incidents and repairs can be chalked up to the joys of homeownership! As construction costs continue to rise, it’s more important than ever that you have the right Homeowner insurance coverage. The best way to protect yourself from rising building costs is to make sure your policy covers them. The best way to do that is by working with a knowledgeable agent, who can help you understand exactly what kind of coverage will work for you and how much it will cost.

One should review their homeowner’s insurance coverage with their agent once a year just to be sure they are properly covered.

You can reach Kelly and her team at: [email protected] or 512-345-0005


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