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Small Business

Mind the Gap … Between Insurance Coverage and Today’s Rebuilding Cost

July 19, 2021

What do the following occurrences have in common:

  • Pandemic
  • Texas power grid failure
  • Historically low interest rates
  • Increased demand for warehousing space
  • Renewed interest in home renovation
  • Suez Canal blockage and other supply chain hiccups
  • Economic rebound

Together, they have contributed to supply issues and the escalation of construction material and labor costs over the last 16 months. Per CBIZ and others, lumber and steel in particular have seen dramatic price increases in the U.S., as have copper (used in electrical wiring), concrete and cement.

Unsurprisingly, those trying to build new homes or commercial business buildings are feeling the pinch. What might not be obvious, though, is that the rapid rise in costs can also affect owners of existing homes and business buildings.

Valuing Property for Insurance Coverage Today

Every property insurance policy contains a statement of value. Unless a policy has been reviewed recently, a gap likely exists between the stated property value and the actual cost of rebuilding if something were to happen.

Homeowners policies may contain language stating that the insurer will guarantee replacement cost if the home is damaged or destroyed by a covered peril. A policy also may include extended coverage (e.g., 20% above the policy limit) to restore or rebuild a home. Homeowners would be wise to review their coverage as soon as possible to confirm that they are protected.

Business property policies, however, contain no safety net. For example, if a property was valued and insured three years ago for $1 million but it actually costs $1.5 million to rebuild today, the insured must find a way to bridge the $500,000 gap. This is especially important for owners of small businesses to understand, as their personal wealth often is at risk.

Next Steps

Hylant clients are welcome anytime to reach out to their service team member for a homeowners policy review or for a small business property replacement cost estimate and recommendations. Others who have questions are encouraged to contact Hylant here.

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.

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