Replacement Cost Doesn’t Mean You Have Enough Insurance To Replace In 2022!

Written by Wendy Beever CIC, ARM

The cost of construction is rising quickly!  In 2021 construction costs rose 17.5% and in 2022 construction costs have risen another 14.1%.  This is having a dramatically increased the cost to rebuild and repair both residential and commercial property.  When those properties need to be rebuilt or repair due to an insurance loss, the cost rises even higher, as it is not a planned event, it is an emergency.  In 2021 emergency repair costs rose 42% (source Yahoo Finance), in 2022 those costs are even higher. 

So, what is the important take away from these statistics?  Most people do not have enough insurance to replace and/or rebuild their residential or commercial properties unless they have reviewed AND increased their limits of insurance in the last 6 months.  

Insurance policies provide “Replacement Cost” provisions, but in many instances, replacement cost will not pay more than your limit of insurance.  Some insurance policies include “ Increased Cost of Construction”, but these enhancements usually only provide 25% – 50% over the insurance limit, in 2022, that may not be enough.  Rare policies include “Guaranteed Replacement”, which is exactly as it sounds, the policy will rebuild the property regardless of how much the property is insured for, however this coverage is rare and requires the insured to go through quite a process to obtain.  

Do you know: 1.) What your residential or commercial property insurance limit is?, 2.) When the last time your limit was reviewed by your Professional Insurance Agent?, and 3.) What features, and provisions are included in your policy regarding replacement cost? 

These are all questions you want answered BEFORE you have a loss.  You don’t want to find at the time of a total loss, that you don’t have enough insurance to rebuild and will be self-insuring the difference.