Why Did the Cost to Cover My Home Go Up This Year?


Inflation, construction costs, climate change and other trends that impact rising home insurance premiums

You live in the same house, on the same block, in the same town as last year. So why would your home insurance premium go up? 

First, it’s important to know insurance premiums are calculated based on two major factors: your overall risk and the cost to replace your home. When outside forces — think: inflation, natural disasters, supply chain issues, rising construction costs — impact either (or both) of those factors, it can explain why rates may be increasing. But there are steps you can take to help keep your costs down. 

Record inflation rates hit construction costs

You can’t escape the daily drumbeat of news about soaring prices. Inflation sent costs up faster in 2021 than in any year since the early 1980s. You see it every day at the grocery store, the gas station, restaurants — and insurance rates aren’t immune. Although the actual amount you pay for home insurance is tied to details specific to your home — the age and location of your house and the deductible you choose, among others — national trends play a role, too. 

Take rising construction costs, for example. A perfect storm has driven construction costs up faster than overall inflation, due to a shortage of building materials and labor. As materials and labor get pricier, the cost to rebuild a home in the event of a claim increases. Rate increases take into account these rising costs. 

  • Building materials. Shortages sent the cost of lumber, drywall, shingles and copper wiring up an average of 26 percent from June 2020 to May 2021, the largest single-year rise in the history of the National Association of Home Builders’ annual survey. 
  • Labor. Eighty-nine percent of contractors reported having trouble finding subcontractors and skilled workers, and 88 percent experienced costly delays as a result, according to a 2021 survey by the Association of General Contractors (AGC). 
  • Supply chain. Bottlenecks in the production and delivery of appliances, materials, tools, and other key construction elements added to delays and to cost hikes, according to the AGC. 

More severe natural disasters

Hurricanes, wildfires, tornadoes and other natural disasters have been bigger and more frequent. Catastrophic damage from these disasters escalates along the same curve. 

Massive rebuilding efforts required after disasters have further strained construction resources, driving costs even higher. And when people rebuild, they’re often building bigger, stronger homes — for safety and to meet modern building code requirements. This is also pushing costs up — and is a factor to consider as you choose your policy limits. 

Looking for ways to save on home insurance?

  • Review your insurance policy limits and deductibles. Higher deductibles can mean lower costs, but more out-of-pocket expense if you have a claim.


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