Right..?

You would think that your insurance covers the cost to rebuild your house if a covered hazard destroyed it. But more and more, the most unfortunate among us are discovering that’s not the case. Ask yourself: are you confident you have enough coverage?

Nobody likes rising prices. But with recent spikes in inflation, stagnation of real wages, and a war on the horizon, they’ve never been more volatile. But the one thing that’s definitely not getting any cheaper? Building a house. Currently, it’s never been more expensive to repair or rebuild. The quote you received ten years ago simply doesn’t apply anymore.

There are three significant trends causing reconstruction costs to climb. First and foremost: the cost of material has climbed significantly, which, in turn, inflates the cost of construction labor. These two numbers are strongly correlated, and both rose by more than 16% in FY 2021, alone.

“But what does this have to do with my homeowners’ insurance policy?”

You’ve probably noticed that your premiums climb over time. This can happen for many reasons, like having recently filed a claim, or a change to pricing models in your state. But one of the major factors considered in those premium pricing models is projected reconstruction cost. Or, how much the insurance company loses, on average, when they’re required to rebuild a destroyed home.

When you purchase a policy, you agree to a certain amount of Dwelling Coverage. In general, you want this number to match what it would cost to reconstruct the home. If a tornado destroys your $500,000 home, and you had $500,000 in dwelling coverage, and the rebuild only cost $450,000: you’re good. In this case, insurance pays for everything.

But if materials and labor each increased in price by 16% in one year? Suddenly, the rebuild quote is around $580,000. But that’s not the insurance company’s fault. If you want your home to look the way it did before: you’re paying that extra $80,000 out-of-pocket.

But what lead to the rise in labor and material cost? At the risk of oversimplifying, here’s why the current reconstruction cost for your home may be higher than it was a few years ago:

Changes to the Labor Market:

Construction workers are finally making a better living in 2022. Combined hourly retail labor rates increased 4.1% from July 2020 to July 2021 – greater than the 3.8% increase recorded in the previous fiscal year. It’s not a bad thing that laborers are commanding higher wages. Historically, retail construction is one of the worst-paying industries in the world. They work hard and deserve every penny they make! But it does have a “pass the buck” effect on rebuild costs. The owner isn’t about to pay their workers more. You are.

Changes to the Supply Chain:

The materials used to rebuild homes are also getting more expensive. Lumber, in particular – the raw timber that forms the framework and interiors of most homes – has become almost unaffordable. It’s already heavy, bulky, hard to transport, and difficult to extract from nature. This, coupled with a doubling of tariffs on Canadian lumber and an unusually-strong wildfire season, led to an increase in softwood prices of more than 112%. 

These changes have persisted into 2022, leading experts to believe that the price increase of wood is no longer transitory, but a permanent fixture of the post-pandemic world.

Tariffs & Trade Wars:

A tariff is a fluctuating tax on imports or exports, typically between two countries. In 2018, the United States government began imposing new, higher tariffs on steel, aluminum, and lumber from several countries – China, in particular – to discourage currency flow. And now, a new round of sanctions has been imposed on Russia for instigating the Ukrainian war. Since they’re one of the world’s biggest oil exporters, this threatens to drive energy prices through the roof, further increasing the cost of construction.

Tariffs and sanctions invariably cause price volatility, punishing the nation in question. They often lead to shipping and processing delays at ports and create bureaucratic nightmares for construction companies.

Across the board, the construction process has become more expensive. And every extra penny owed is passed down to you, the consumer. So what do we do? It’s unlikely, to say the least, that reconstruction costs suddenly revert to what they were in the before-time. How would you know if the reconstruction cost for your own property has increased?

The short answer is to review your policies yearly. In the post-pandemic world, you should check in frequently, compare policies, and request new quotes for reconstruction costs.

Is it an unfair burden on the consumer?

You bet.

Does it matter to the insurance companies?

Not in the least.

They’re also occurring earlier and later in the year. In Boulder, CO: an enormous wildfire punctuated the last days of 2021. No fatalities occurred, but hundreds of homes burnt down. The very next morning, 10 inches of snow fell on the scorched community. Images of the smoldering, snow-covered remnants became, for many, an unsettling and tragic reminder of our ongoing climate emergency. To add insult to injury: 84% of wildfires occurring in the United States are directly caused by humans. Every year, the number of wildfires grows, leaving more and more people vulnerable to the financial, physical, and emotional devastation wrought by climate change.

If you’re a homeowner in a high-risk area like Alaska, California, Oregon, Idaho, or Texas: it’s imperative you know how your insurance coverage can protect your life’s work from going up in smoke.

First off: does homeowners insurance even cover wildfire fire damage?

The answer is a resounding YES. Wildfires are, unfortunately, the most common total-loss event in the United States. As a result, smoke and fire damage coverage is almost always included in the basic HO3 policy. It provides coverage for the following, which might come in handy in the event of a wildfire:

• Dwelling Coverage (or, in non-insurance lingo: your house)
• Auxiliary structures within the property line
• Personal property
• Additional living expenses, in the event your home becomes uninhabitable due to fire or smoke, or mandatory evacuation.

But, in the immortal words of Benjamin Franklin: An ounce of prevention is worth a pound of cure. There are essential, additional steps to protect your home from wildfires.

Clean Your Property:

Fire needs fuel, and it can use nearly anything lying around your property. Needless to say: if there’s fire on the way, immediately get stacks of wood, mulch, coal, and especially propane tanks away from the perimeter of your house. Be extra cautious around pine and juniper trees, as their leaves contain highly flammable oils and resins. If you have those trees on your property, stay on top of ’em.

Fire-Proof the Roof:

The roof is both a first line of defense and the weakest link when it comes to wildfires. It’s the most exposed, therefore, most-vulnerable surface. But if the roof catches fire, the entire house burns in a matter of minutes. If you live in one of the areas mentioned earlier: your roof must be crafted out of fire-resistant material like concrete, metal, stone, or ceramics. Not wood. And if you do have wood features on other areas of the house, coat them with a flame retardant finish. But even chemical fireproofing isn’t a surefire solution. Dead leaves, brush, and debris in the roof and gutters are all fuel for fire; and all it takes is a tiny, falling ember to set it off. A clean roof is a fireproof roof.

Seal It Off: 

Embers are those tiny, red-hot pieces of burning wood that glow at the bottom of a dying fire. They look lifeless compared to a flame, but they actually burn hotter. And since they’re so small, they can even travel on the wind. If they enter your home through a hole, vent, or other openings: it’s almost sure to burn the inside. During Wildfire Season, cover outdoor vents with hardware cloth and seal off doorjambs to prevent embers from entering your home. It’s worth looking into fire-resistant windows, too, as even ambient heat from a nearby wildfire can cause non-tempered glass to crack or burst.

As the size and scope of Wildfire Season expand, so does the importance of fire prevention.

If you live in a wildfire-prone area: be prepared. A thorough understanding of your homeowner’s insurance coverage can provide much-needed peace of mind in the face of looming natural disasters.

The HO-1 and HO-2 are cheaper, more limited policies. The major difference is that an HO-3 covers your home against all conceivable perils unless an event is named explicitly as an exclusion. On the flipside, HO-1 and HO-2 only cover “named perils” and will not pay out claims for anything other than what’s on the list. For example, the HO-1 policy has fire insurance, but not falling object insurance like the HO-2. And comparing an HO-2 versus an HO-3, an HO-2 will only cover you if a peril is explicitly named in the policy. In contrast, an HO-3 will protect you from anything the policy didn’t specifically exclude.

But there will always be some level of exclusion, even on the HO-3 policy. Knowing what those categories are – what is and isn’t covered – can save life-changing amounts of money down the road. So let’s review the typical, named exclusions on the HO-3 policy:

Earthquakes? – NOT Covered

In most states, “earth movements” are not covered by standard policies. That includes earthquakes, sinkholes, landslides, erosion, and the like. But earthquake insurance does cover these types of events. For those living in geologically-unstable regions, it can and should be purchased as an endorsement (or additional policy) alongside the original HO-3 for an additional fee.

This is the case for all states, except California – where earthquakes are virtually a fact of life. Everyone has earthquake insurance, insurers are federally-sponsored, and insurers are legally obligated to sell earthquake policies.

Floods? – NOT Covered 

If your pipes burst, if the water heater explodes, if the upstairs unit floods and rips through your ceiling: you’d be covered by most homeowners insurance policies. Water damage resulting from freezing, rupturing, or sudden accidental plumbing overflow is covered under even the most basic HO-1. But other types of water damage are still excluded, namely: flood damage.

The reason is: flood damage is enormously expensive to fix. It impacts all house systems and often affects the most sensitive areas of a dwelling – the foundation and utility rooms. So insurers are loathe to pay out those claims. They’ll look for any possible reason to withhold reimbursement.

But flooding isn’t just an overflowing nearby creek. If you have overflow or backup from a sump pump, damage to the sewer/septic system, or backflow in your drains: a standard HO-3 policy simply will not cover the damage. Like above, you’ll need to purchase a separate endorsement and get flood insurance added to your policy. It is only available through the federally-run National Flood Insurance Program.

Power Failures? – NOT Covered

It feels counterintuitive. If there’s a citywide blackout and you lose power to your fridge, that could be hundreds of dollars down the drain. And it was entirely unavoidable! There’s simply nothing you could’ve done to predict or prevent it.

But unless the source of the power failure was a named peril occurring within the property line, it’s not covered under the HO-3.

So say there’s a bad storm, and you experience a power surge. Several major appliances plugged directly into the socket instead of a surge protector have fried. You cannot submit an insurance claim for this for two reasons: 1.) the source of failure was off-residence, and 2.) the surge damage to your appliances was the result of negligence.

Be aware that this strange, counterintuitive clause appears in many HO-3 policies.

Maintenance Issues? – NOT Covered

This is where things get really tricky.

Taking proper care of your home is an essential part of ownership. Clearly, many catastrophic events aren’t covered under standard policy. And they typically originate from neglect and failure to maintain the property.

Examples are numerous and abundant: termites and other insect damage, bird or rodent damage, septic and sewage, rust, rot, mold, electrical failures, smog, industrial and agricultural damages, general wear and tear – none of it is covered. The rationale is: if it’s the homeowner’s responsibility to detect, repair, and prevent damage to the structure, then any damage resulting from a failure to do so, is also their responsibility.

Personal Property – PARTIALLY Covered

While the home is covered in entirety under an HO-3, personal property is still covered on a named peril basis, which means that your belongings – clothes, furniture, appliances, etc. – are only partially covered. This leads to some perplexing situations. For example, you’d be entirely reimbursed for intact clothing damaged by smoke from a fire, but only partially compensated for destroyed clothing buried in an earthquake.

HO-4 and 6 – respectively, renter’s and condo insurance – are not within the scope of this article. But HO-5 is a modified version of HO-3, in which the open perils coverage on a dwelling itself is extended to personal property within the dwelling, providing the homeowner with extensive, additional protection for both family and belongings.

Other Exclusions

Even the above list doesn’t cover everything. There are a variety of other uncommon perils typically excluded by the HO-3 policy. Including…

• Damage caused by war
• Damage caused by a nuclear hazard
• Expenses incurred as a result of identity theft
• Minimal, sub-limit coverage for high-value items
• Government seizure through eminent domain
• Demolition or rebuilds necessary to match building and zoning ordinances

HO-3 policies are based on policy forms written by the ISO, or Insurance Services Office, which provides data and advisory services to the insurance industry. However, just because a policy was based on the standard version of the ISO HO-3 does not guarantee that it adheres precisely to those standards. No two insurers offer exactly the same coverage in their individual HO-3 policies.

You should always, always, always discuss the full scope of a prospective policy’s coverage with a licensed insurance agent, or personal legal counsel, before purchasing.

Making a few smart decisions during the buying process can help you save hundreds of dollars annually. Below are some tips to use when researching home insurance policies.

1. Know the Facts

Before you buy, take the time to thoroughly assess the condition of the home. It’s also important to consider the various components of the house, such as its electrical and plumbing systems. Certain materials, such as masonry houses, can provide an insurance break for minimizing fire damage. However, they can also be very costly to defend against earthquake damage.

2. Consider the Geography

Regardless of the materials used, the location of your home can affect the insurance coverage you get. In most cases, homeowners in areas prone to natural disasters such as hurricanes and earthquakes will pay more for their insurance than those in areas with less severe weather.

Your insurance rates may also be affected by the type of neighborhood you live in. For instance, a home in a well-populated area may cost less to insure than one in a sparsely populated area.

3. Know How Much Coverage is Needed

According to a study conducted by Marshall & Swift/Boeckh, over 60% of Americans are not fully covered for their homes’ replacement value. This figure, which is the difference between the market value of a home and the cost of rebuilding it, can be very costly to pay.

Since the cost of materials has increased significantly in the past couple of years, it’s more probable that a home’s replacement value will go beyond its market value. Having the proper insurance coverage can help lower your insurance costs in the long run.

4. Protect Your Assets

Aside from keeping your home insured, also consider adding liability coverage. This can help protect against the financial losses that can result from a claim. If a person gets injured while visiting your home, the insurance company for that person could hold you responsible for the medical costs of the injured individual. Your policy can also cover these expenses.

Most insurance experts suggest that homeowners get $300,000 in liability coverage. This level of coverage is usually enough to cover the legal expenses of a person who accidentally gets injured while visiting your property.

5. Determine Your Comfort Level

Your deductible level can also be selected by the insurance company. It can be lower or higher, depending on how much money you need to save. Having a higher deductible can help lower your monthly insurance costs.

6. Get Comfortable With Preventative Maintenance

Having the proper insurance coverage can help prevent major losses from happening. Having a home warranty can also help lower your insurance costs as it provides coverage for certain repairs and maintenance needs. Just be sure not to take out too many claims for small repairs. You may see an increase in your policy when you renew.

7. Safety Measures Save Money

Security measures can help lower your insurance premiums. Aside from buying a home security system, consider also adding other safety features such as deadbolt locks and fire extinguishers.

8. Keep Current Records

Having the proper records can help you get the most out of your insurance claim. Having these records allows the insurance company to analyze the condition of your home and its contents.

Before a disaster strikes, take inventory of all of your possessions. This can help you determine the value of these items and what’s inside them. Having a record can also help the insurance company determine if a claim should be made.

9. Pick a Good Insurance Company

Doing business with a good insurance company is important. Before buying a policy, check the company’s complaints record and rankings on various factors such as customer satisfaction and claim payouts.

10. Consider “Float” Coverage

Although a standard homeowners policy can cover most of your home and belongings, it may not provide comprehensive coverage for expensive items such as jewelry and coin collections.

If the value of your valuables exceeds your policy’s limits, you may want to consider adding a “personal articles floater” to your policy. This type of coverage provides coverage for items that are appraised or currently have a market value of less than their current purchase price.

Insurance is a form of risk management. In simple terms, it’s like betting. You want to place your “bets” wisely.

Home Insurance

This is a “must have” product. Even if your house is paid in full, you will want to make sure you have coverage in case of disaster. We all need a home so you want to cover yourself here.

Some types of disasters are not a good bet for the insurance industry because they are too likely to happen. This is why flood insurance is provided by the US federal government and is not part of standard home insurance policies: Because it isn’t a question of if your area will flood. It’s a question of when, so there’s not really a bet there.

It’s Protection, Not A Get Rich Scheme

Insurance is intended to mitigate your losses. Some people may think of it like they are buying a lottery ticket but those folks don’t really understand what insurance is about.

This is a loss you do not want to take. If you are hoping to insure something and then see it all go up in flames so you can collect, you are doing it wrong.

You should be making every effort to use best practices to protect your property yourself. The best outcome is that you never need the insurance to pay out.

Insurance is only about financial protection. There is a lot of pain and suffering involved in a major loss that money doesn’t really fix.

If Something Bad Happens

Make sure you document everything. Contact the insurance company promptly. Insurance policies routinely have deadlines for filing claims. If you miss your deadline, you may not get a dime.

You will want to immediately do a quick search for hidden issues that can happen. Maybe there was a fire and your house did not burn but you should do a quick search.

If there is ash secretly getting into your attic or HVAC system, you will want to know what to look for and do so promptly. Finding out quickly about hidden damage associated with various types of claims is the only hope you have of getting properly reimbursed and the amount of money involved can be substantial.

Who Can Talk To Your Home Insurer?

There are only four people that can talk to the company covering your house: You, your insurance broker, your attorney (and you have to sign special paperwork in this case) and an independent insurance adjuster.

If there has been a major disaster, it can be well worth contacting an independent adjuster. Insurance is complicated stuff and the same policy can pay different amounts depending on local state laws.

You probably have no idea which laws apply. An adjuster will know those details and they have a track record of getting a better settlement than average.

If you have reason to think you may need to sue, the first consultation with a lawyer is often free. You will want to talk to them sooner rather than later, while the details are fresh in your mind and before you have made some dumb mistake. It’s common for people to accidentally destroy evidence while doing clean up, thereby undermining their own claim.

One reason is to protect your personal belongings in your home. A house can be an expensive investment, so protecting it with adequate home protection is vital. Home Insurance is required by mortgage lenders and protects your home against fire, theft, and damage due to natural disasters and man-made events. A good policy covers these and other risks to your home.
Protecting your home against theft will save you much money, as items can be stolen at any time. Contents coverage helps protect your property and its contents in the event of a total loss from theft, storm, fire, or another disaster.
What does Insurance cover? The policy should cover the following: repairs to your home if damage occurs from a flood or other damage, protecting personal belongings in your home, protecting your home against fire, damage caused by explosions or faulty electric wiring, protecting your mortgage lender if the home is damaged and you cannot make your monthly mortgage payment. You can usually select the options you need for your policy, depending on the specific coverage you need. Usually, you should purchase additional insurance to cover uninsured losses.
Home Insurance also protects against acts of God, damage from a civil disturbance, damage or destruction of personal property that happens on your property. Knowing what kind of protection your policy provides under each category is vital to ensure you receive adequate coverage. The most common disasters covered are fire, smoke, explosions, lightning, windstorm, vandalism, and theft. Different policies also provide liability protection. You will need this type of protection, especially if you live in a neighborhood where you may be liable for damages or injuries caused by others.
When your car is damaged or stolen, you may not be able to afford to fix it or pay for its insurance. Contents inside the vehicle are usually not covered unless you purchased a policy that specifically stated that it would provide coverage for personal possessions inside. The good news is that most policies do cover contents and the cost to replace them if they are destroyed.
Most mortgage lenders necessitate homeowners to have a certain amount of insurance coverage on their property. This coverage is a legal requirement. If you do not have enough insurance coverage, you may be forced to pay for the damage out of your pocket. This payment can be demanding, especially in a slow economy.
It is key to keep in mind that you always need to protect yourself from a lawsuit. Lawsuits can occur because of anything that happens to your house, even a natural disaster. Without home insurance coverage, you may be responsible for any damages to another while on the property. This responsibility costs you money, but it may also put you in the wrong position with the lender. If a lawsuit were to result, your lender might be forced to foreclose on your house.
Mortgage companies and lenders often require home insurance coverage. If you are getting a mortgage, you must have home insurance on all your belongings inside the home. Your insurance will also cover items in the house that are used as part of your employment. In order to get this type of insurance, you should talk to your lender or mortgage company directly.
Having insurance on your possessions is not only a wise decision, but it can be essential to your financial future. If your possessions were to be damaged or stolen, you would not be able to fix them. If they were stolen, you would not be able to sell them, rent them, or use them for anything else.
There are many different reasons why you would want to purchase home insurance coverage. However, before deciding which type of insurance to purchase, comparing different home insurance policies is essential. By comparing multiple home insurance policies, you can ensure that you are getting the right amount of coverage, the best terms, the best benefits, and the lowest cost.

Individuals are looking for new ways to structure their lives. These new ways to structure their lives are taking place due to a variety of demands and changes taking place within the world. Sure, the recent pandemic was one of these instigating factors.

One of the ways that individuals are making changes is in how they live and survive. They are noticing that it is better to downsize and live in a smaller home.

Here is what you must know about this trend that is taking place within the United States and elsewhere as well.

The Demand for Tiny Homes
Indeed, the demand for tiny homes among people rose rapidly during the coronavirus pandemic. Whether stand-alone homes or backyard dwellings, the market grew as homeowners required additional and an affordable space. The tiny house is usually eight times smaller than a typical typical home. In the US, the average size of a tiny home for sale is around 225 square feet. However, the general scope of the little house elsewhere is about 600 square feet.

As the size of the tiny home is smaller, the price for tiny homes is less than that of typical houses. However, buyers are paying more on tiny homes, and likewise, homeowners are obtaining more money. In addition to this, the tiny home is sold for $52,000 in the US, which is approximately 87 percent cheaper than that of an ordinary house. However, as mentioned above, the homeowners are making profits, and buyers are paying 62 percent more than usual.

Factors To Consider with Tiny Homes
If your home is located off-grid, there are maximum chances that you will have to make all necessary arrangements yourself, such as installing a solar panel, you may have to dig or collect rainwater or install a septic system. In addition, you will not have access to utility firms.

Finding tiny homes is a task itself hence, you will have to find a place best suited to you. You can get the cheapest tiny homes in North Dakota; however, if you aim to buy tiny homes from the square feet perspective, Arkansas is the best place to get your small house. While Hawaii is one of the most expensive places to look for homes, it also has expensive real estate.

The Places to Obtain Cost Effective Tiny Homes
When you search for a tiny home and seek affordable options, the prices can vary from place to place, but the top sites that are most affordable are North Dakota, New Hampshire, and New Jersey.

Think about Home Insurance for Tiny Home Properties
According to Valuepenguin, areas that are most expensive to insure a tiny home include Oklahoma, Kansas, and Texas.

This is because the place has high tornado activity.

According to Valuepenguin, the most significant demand for tiny houses is among Alabama, Arkansas, Oregon, and Wyoming. At the same time, the home insurance is most expensive in Arkansas and Alabama.

What about Construction Costs for Tiny Homes?
Construction costs for tiny homes are also rising due to land, labor material, and supply chain issues. Moreover, tiny houses rarely appreciate value, especially when made customized according to a client’s needs.

Remember to think about all the costs of tiny homes if you plan to pursue this option.