Homeowners Insurance and The Rising Cost of Building Materials

It’s no secret that the cost of living continues to rise across the board. Food, transportation, healthcare, etc., everything we use can feel as if it continues to have its rise in cost. It’s easy to spot when our favorite dinner spot raises their entrees by $3 a plate or when gas creeps up or a grocery bill feels several dollars over what we paid the same time last year, but when is the last time you evaluated how much it would cost to rebuild your home?

From natural disasters to inflation to additional economic factors and more, the cost of building materials continues to rise as does the labor it takes to assemble these materials. Ordinarily, this is not a welcomed sight for those looking to renovate or purchase a home but it is at a more manageable level; however, the increase in lumber among other materials homeowners and builders are seeing in 2020 and 2021 are more than alarming.

Homeowners have more than one reason to pay attention to these developments because even if you aren’t looking to purchase or modify your home, the cost of building materials will affect your home insurance coverage in two major ways: your rates are likely to increase and you also may not be covered with enough coverage to protect your home and your finances should you experience a loss. Yes, the uptick in natural disasters Americans have had to contend with and the rising cost of building materials are increasing home insurance premiums all while leaving homeowners in an awkward position when it comes to their home’s protection.

But things aren’t all “doom and gloom”. Homeowners have options and many things can be done to help homeowners find the protection they need without overspending due to an increase in material prices. Take a closer look at how building materials are raising the cost of coverage and how homeowners like you can help mitigate these rising costs while staying protected for whatever comes your way.

Factors That Are Causing Building Materials to Rise

Understanding the rise in building materials such as lumber is a mix of many different economic factors with many of them stemming from the COVID-19 pandemic. Consider some of the following:

  • Money that would ordinarily go towards things such as vacations is now going to home renovation projects. This includes stimulus checks.
  • The pandemic has caused the demand for single-family homes to rapidly grow.
  • Sickness and guidelines are creating supply chain issues and shortages across many different industries with construction being no exception.
  • Historically low-interest rates compounded demand for renovations and home purchases.

These factors and more have contributed to the sharp hike in the cost of materials for building a home. Even the political climate that America finds itself in is playing a role in how much homebuilders are paying for their homes through the tariffs being imposed on building materials. Some ships cannot come into port, ripples caused by a lack of workers earlier in the pandemic still being felt today, and the purchasing power of home buyers who continue to pay higher prices for homes all raising the cost of materials such as lumber and steel.

The Rise in the Cost of Building Materials

Texas is a huge state featuring plenty of homes with some of the most prevalent being single-family homes, condos/townhomes, and ranch-style homes. During the recent shortages being presented in the construction world, there are various materials homebuilders are scrambling to find to meet demand as homes become more and more scarce on the market. Softwood lumber alone is up well over 100% from a year ago and other materials and labor continue to march upward right alongside it:


Sources: Trading Economics, Home Advisor, HomeX, Remodeling Calculator

As you can see, the price of many common building materials is up from a year ago across the board. These price increases mean that when you suffer a loss and submit a claim with your homeowners insurance, your insurance provider will need to spend significantly more in 2021 than they would have a year ago to rectify your loss. When insurance carriers create your premium they are assessing the amount of risk they are undertaking while insuring your home. An increase in the amount they will spend to restore a loss means a higher financial risk for their brand and higher premiums for your homeowners insurance.

Understanding Actual Cash Value vs. Replacement Cost

Different home insurance policies pay in different ways depending on which policy you choose to protect your home. This is where the importance of understanding the difference between actual cost value and replacement cost comes in. For an in-depth look at both including some FAQs regarding the subject, check out our article on Actual Cash Value vs Replacement Cost, but for an overview, continue below:

  • Actual cash value is the cost to restore your loss minus depreciation. Homeowners can expect lower home insurance premiums.
  • Replacement cost is how much it costs to replace your loss with a brand-new, equivalent of what is lost. Policies using replacement cost tend to have higher premiums.

When you insure your home, you must remember what you are protecting your home from. A standard HO3 policy will protect your home from many different perils including vandalism/theft, damage from vehicles, and fires. Destructive perils can cause damage to your home but some can destroy it completely. Homeowners must protect their homes, even those which are paid off, with an adequate amount that will cover a complete rebuild should they suffer a major loss.

Considering the sudden rise in building materials and labor costs, many homeowners may find themselves shocked to learn that their policy is inadequate in paying for everything should they choose actual cash value or a policy with cheaper premiums but lower policy limits. It’s always important to prepare for the worst-case scenario and think long-term when protecting your home. Saving a few bucks today could end up costing you thousands upon thousands of dollars out of your own pocket tomorrow.

Find Lower Home Insurance Rates Despite Rising Costs

Rising costs, rising rates, and staying protected. There are a lot of factors at play for homeowners but luckily, TGS Insurance is here to help. Another important thing homeowners can do to stay protected is to review their home insurance policy at least once a year. Many homeowners renew year after year leading to an increase in premiums without ever second-guessing themselves that they may be overpaying. In the same sense, these homeowners may renew time and time again without reviewing how much coverage they have and how much it will take to rebuild their home in the event they were to suffer a major loss.

At TGS Insurance, we don’t just find you the best homeowners insurance for your needs at the lowest price possible, we continue to work for you well after enrollment to ensure that you continue to receive the best coverage at the lowest rate for years to come. Homeowners are all in need of coverage that can protect their home and their finances and nobody wants to break the bank. By comparison shopping among our partnerships with 35+ top-rated insurance brands, we can save homeowners $870 on average a year on their home insurance premiums. Through bundling other policies such as an auto or an umbrella policy, we can often save our clients even more while keeping them protected in multiple facets of life. 
If you haven’t reviewed your homeowners insurance policy in a while, now is the perfect time to do so with the cost of materials on the rise. TGS Insurance also adds windstorm/hail coverage with a 2% deductible for all of our clients so that no matter what, you’re prepared to protect your home against the many perils it may face. Contact us to review your coverage options to stay protected and see how much we can save you on your homeowners insurance today!

About Katie Rosario

Katie has been in the marketing industry for over 10 years and has a strong passion for writing great content. She has been writing for TGS Insurance for three years and strives to make every piece of content she works on informative and easy to read. In her spare time, she enjoys baking and spending time with her family.