Could Rising Materials Prices Leave You Without Enough Insurance Coverage?

Legal
Published

As building material prices continue to rise, home builders and remodelers are reevaluating some of their normal business operations to increase inefficiencies and protect their bottom lines. One area that may not immediately come to mind is the impact of rising prices on a project’s insurance coverage.

During a home construction or renovation project, builders and remodelers carry policies that provide coverage for risks to the project or property. The ever-changing nature of the property covered creates unique valuation issues in the event of a loss.

Coinsurance clauses, which are found in many insurance policies, require the insured to maintain coverage to a specified value of the property, usually between 80% and 100%. It also stipulates that if the insured fails to do so, it must bear a proportionate part of the loss. The term “coinsurance” is also applied to situations where the insured is contractually obliged to insure part of the risk with a second insurer. If the insured fails to carry a sufficient limit to satisfy this provision, a penalty is applied.

Coinsurance provisions also are commonly found in builder’s risk completed-value policies. Because a builder’s risk policy applies to a property that is undergoing construction and therefore its value increases over time, reporting cost overruns that increase the completed value is important to ensure that you do not inadvertently become subject to a coinsurance penalty.

According to Treacy Duerfeldt, CEO of Nationwide Contractors Alliance, and a member of NAHB’s Construction Liability, Risk Management, and Building Materials Committee, this is particularly pertinent now, “because as a result of the rising cost of building materials, it would not be uncommon for the initial estimate of the completed value to be understated, potentially triggering the penalty clause.”

When the actual cost of the project exceeds the initial estimate, it may be necessary to increase the limit or a coinsurance penalty may result.

To ensure that you have the right amount of coverage and to avoid a coinsurance penalty, consult with your insurance advisor or agent.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

IBS | Sustainability and Green Building

Jul 09, 2026

2027 IBS Sustainability & Green Building Scholarship Application Now Open

The NAHB IBS Sustainability and Green Building Scholarship aims to provide emerging green builders exposure to the world of high-performance homes and help them jump-start their professional journey by attending the International Builders’ Show (IBS). Applications are due Oct. 23.

Economics

Jul 09, 2026

Remodeling Market Sentiment Remains in Positive Territory in Second Quarter

NAHB released the NAHB Remodeling Market Index (RMI) for the second quarter, posting a reading of 61. Although the reading inched down one point from the previous quarter, it is still in positive territory and has remained in the low 60s consistently over the past year.

View all

Latest Economic News

Economics

Jul 10, 2026

2025 New Single-Family Starts by Census Division

Persistently high mortgage rates, elevated costs for builders, and ongoing supply-side constraints continued to weigh on single-family construction in 2025.

Economics

Jul 09, 2026

Existing Home Sales Slowed in June

After reaching a five-month high last month, existing home sales pulled back in June as record-high home prices and elevated mortgage rates weighed on buyers. This monthly volatility reflects the sensitivity of home buyer demand to mortgage rate changes.

Economics

Jul 09, 2026

Remodeling Market Sentiment Remains in Positive Territory in Second Quarter

In the second quarter of 2026, the NAHB Remodeling Market Index (RMI) posted a reading of 61, down one point compared to the previous quarter. The RMI has remained in the low 60s consistently over the past year.