Why Are Home Insurance Premiums Rising So Much?

While there are multiple reasons for this rise in premiums, the most significant factor is the increase in the cost of building materials (Replacement Cost).

Inflation and the rise in prices for construction materials and labor are causing the cost of building homes to increase. Reflecting these increases results in higher dwelling coverage limits for home insurance, consequently leading to higher insurance premiums.

We can also look at the necessity of having adequate dwelling coverage from another perspective. Living in an era of extreme weather, we frequently encounter natural disasters such as floods, wildfires, and tornadoes in the media.

These unpredictable events affect vast areas, and one can only imagine the scale of homes that need to be rebuilt or repaired simultaneously when such disasters strike. The sudden surge in demand disrupts the balance of supply and demand, inevitably leading to a significant increase in construction and repair costs. Regardless of where we live in the United States, no place is entirely safe from natural disasters.

While the risk of natural disasters in Georgia might be lower compared to places like LA with frequent wildfires or coastal areas prone to tornadoes, we are still not entirely safe from risks like floods or tornadoes. Therefore, it is crucial to be prepared for unexpected accidents by also considering flood insurance and ensuring that your dwelling coverage is sufficient.

Home insurance policyholders often find home insurance simpler than auto insurance and tend to compare only the premiums rather than the coverages included. However, since home insurance offers more options than auto insurance, it is important to thoroughly understand the necessary options through discussions with your agent before purchasing a policy.

Here are some important options to consider when adding to your home insurance policy:

1. Replacement Cost: This is the cost needed to rebuild your home to its pre-disaster condition. Given the significant increase in construction costs, policyholders should contact their agents to ensure they have adequate coverage. It is also advisable to cover personal property at replacement cost (the price to buy new items) rather than actual cash value (the cost minus depreciation).
2. Extended Replacement Cost Coverage: This option provides an additional 10-50% of dwelling coverage. It is crucial for covering the significantly increased costs of labor and materials during natural disasters.
3. Building Code & Ordinance: Insurance companies typically cover the cost to restore a home to its pre-disaster state. However, additional costs required to comply with updated building codes are not covered and must be borne by the policyholder. This coverage compensates for these additional costs.
4. Automatic Inflation Guard: This option can be selected during policy renewals to keep up with the annual increase in construction costs. However,during extreme inflation periods like now, the automatic inflation guard may not fully keep pace with actual inflation, so it is necessary to discuss with your agent to adjust the dwelling coverage.

‍