How Rising Construction Costs Are Changing Home Insurance Needs

Building or rebuilding a home today costs a lot more than it did just a few years ago. In fact, the average dollar amount spent on construction costs jumped by nearly 45% from 2019 to 2024, according to the National Association of Home Builders.

Nearly every part of the construction process has become more expensive, from lumber and steel to permits and labor. And as those costs climb, so does the amount of homeowners insurance you’ll need to carry in order to be fully protected if the worst were to happen to your home.

Let’s say you bought a house in 2010 and insured it for $250,000. At the time, this amount reflected what it would have cost to rebuild the house if it were destroyed by fire or another calamity. Today, that same house could cost $360,000 or more to reconstruct, meaning the coverage limit on the policy would need to be at least $110,000 higher than the original figure.

Making smart adjustments to your policy now can ensure your home — or rental property — is fully covered, no matter how high construction costs go.

Common insurance gaps homeowners may face

Rising costs widen coverage gaps that homeowners may not even realize exist until it’s too late. For example, many home insurance policies come with static limits that don’t automatically adjust for inflation or sudden surges in construction expenses.

Even if a policy covers rebuilding, insurers often only include a portion of the costs to cover an upgrade due to code, meaning a homeowner would be responsible for making up the difference.

This same rule applies to rental property — many policies include reimbursement for some lost rent due to tenant damage; what it covers will vary depending on the policy.

What homeowners can do to combat rising costs

A smart first move for homeowners is to review and update your policy regularly.

Make sure the dwelling coverage limit reflects current rebuilding costs rather than the value of your home when you first insured it. Some insurers offer inflation guard endorsements, which automatically adjust your coverage each year to account for rising construction expenses.

You can also consider extended replacement cost coverage, which provides an extra cushion (usually an additional 30% of your Coverage A limit) if rebuilding costs end up exceeding your underlying policy limit. However, it is important to note this does not guarantee full replacement costs as the policy limit still applies.

It’s also important to document any upgrades or renovations as well, since improvements often raise your home’s value and replacement cost. Notifying your insurer helps ensure your coverage stays aligned with reality.

This story was originally published September 29, 2025 at 9:30 AM.