How do material costs influence the reconstruction value of your home?

Insurance, Reconstruction value, indemnities

Increase cost of construction materials: Your home’s reconstruction value will be affected.

The pandemic has forced more than half of the population to spend more time at home. Many people had to learn to work from home. However, spending all this time at home encouraged many to build a residence, buy a house or undertake major renovations.

The current real estate market is booming and can influence the reconstruction cost of your home. Which means you may no longer be insured for the correct amount it would cost to rebuild your home in the event of a major claim.

Here’s what you should know.

How do material costs influence the reconstruction value of your home?

First, you should know that rebuilding a house usually costs more than building it from scratch.

Of course, there are fixed costs, such as the size, year of construction and style of the house. However, the calculation of the reconstruction value must also consider variable costs such as labor costs and the cost of materials.

For example, the price of lumber increased 300% in 2020. If a 2×4 cost $ 3 when you built your house and now costs $ 9, the reconstruction value of your house could reflect the same increase in value.

It’s not only about wood …

The rise in the cost of material seen in 2020 affects not only wood, but also materials used for general renovations.

There is indeed a 5% increase in the cost of materials used for the roof, basements, bathrooms, aluminum cornices and kitchens.

This increase will result in a direct increase in the reconstruction value in case of a claim costs will be higher, regardless of the damage or the type of claim affecting your home.

It is important to know that the municipal assessment and the market value do not reflect the reconstruction value in any way.

The municipal assessment and the market value of your home are not enough to determine its reconstruction value in case of a claim. In addition to being subject to market fluctuations, these two values ​​are not used as benchmarks for insurance purposes.

These values do not depend on the cost of materials. So, using these values ​​to insure your home will cause you a prejudice in the event of a claim. They do not reflect the true costs of rebuilding in the event of a partial or total loss.

What about living expenses?

Rising prices for building materials could also have an impact on your additional living expenses.

If your coverage does not consider the increase in reconstruction costs, you risk receiving an insufficient amount in the event of a claim or even a partial amount. You could therefore run out of additional living expenses and you will have difficulty finding accommodations while the work is being done on your home.

To be safe in the event of a loss, it is necessary to have adequate home insurance coverage.

To do so, you must verify whether the reconstruction value of your home listed in your insurance policy considers the increase in the costs of construction materials.

By failing to contact your insurer, you risk:

  • Pay inaccurate premiums
  • Running out of funds to lodge you & your family in the event of a claim.
  • Receive an insufficient amount to cover all repairs

So how do you ensure that you have the right insurance amount that matches the true reconstruction value of your home?

Simply call your broker Ciccarello Assurances at 514-253-8960, a few questions later and he will be able to establish the reconstruction value of your home!

It is strongly suggested to contact your broker before starting your home renovations. Your insurance amount as well as your current premiums may not match the reconstruction value of your home after the work is done.

Thus, in the event of a claim, you may not have access to an amount sufficient to accommodate you or to carry out repairs.

It is recommended to call professionals for your major renovations, in an event of a claim it will simplify your procedures with your insurer. In fact, the foreman will be able to forecast costs, provide you with quotes and guarantees and take care of obtaining the necessary permits.

Renovations done on your home can influence the premium and your home insurance needs simply because renovations can translate into a higher insurance premium as well as increase the reconstruction value.

In some cases, some renovations may increase the reconstruction value of your home and the risk of a claim.

Below are some examples:

  • Finishing the basement (increases reconstruction value)
  • Adding a bathroom (increases value, but adds risk of additional water damage)
  • The installation of a swimming pool (increases the value, but represents an accident risk)

So, what should we do?

Contact your insurance broker to find out if you need to increase your insurance coverage before starting your renovations. This way, you can compensate for unforeseen events along the way and receive a fair settlement in the event of a claim.

Some renovations could save you money on your insurance premium.

On the other hand, certain improvements to your home can decrease the risk of loss and therefore lower your insurance premium. Your insurer could in some cases reduce your insurance premium if you tell them about these any of these upgrades.

Below are some examples:

  • Improve heating systems
  • Repair plumbing
  • Redoing the roof

The first step before starting any renovations is to contact your insurance broker and check if you need to adapt your insurance coverage to suit your renovation plans.

By doing so your premium will reflect the insurance clauses that will best protect your home in in the event of a loss, during or after the work.