Rising Lumber Costs & How it Affects Your Home

As a homeowner or property owner, it is crucial to ensure that your insurance policy accurately reflects the rebuild value of your property. However, with the recent surge in lumber costs, the price of rebuilding or replacing your property has also significantly increased. Discover the reasons behind the rising costs of lumber, how it affects your home insurance, and what steps you can take to protect your property.

Rising Costs of Lumber: A Closer Look

The cost of softwood lumber has experienced a staggering increase in recent times. According to StatsCan, softwood lumber prices rose by 118.9% in Canada between March 2020 and March 2021, marking the largest year-over-year increase reported. But what factors have contributed to this sharp rise in lumber prices?

The Pandemic’s Impact

The COVID-19 pandemic played a significant role in creating a perfect storm that led to the surge in lumber prices. Due to lockdown measures, mills and timber operations across the United States and Canada were forced to shut down in early to mid-2020. This closure resulted in a backlog of production and a subsequent decrease in the supply of lumber.

High Demand and Low Inventory

Another contributing factor to the rising lumber costs is the high demand for housing and home improvement projects. Many homeowners, faced with limited options due to travel restrictions and closures of local amenities, turned to upgrading their homes. This remodelling surge increased demand for building materials, including lumber, which further drove prices up.

Additionally, the low inventory of available houses on the market has intensified the demand for new construction. As a result, contractors and homeowners competed for limited lumber supplies, leading to inflated prices.

Tariff Issues

Tariff issues between the United States and Canada have also affected the current lumber price hike. In previous years, the U.S. imposed a 20% lumber import tariff on Canada in 2020, its largest importer of building materials. Although the tariffs have since decreased as supply opened up post-pandemic, lumber mills chose to slow down their production from 2021 to 2022. This decision further contributed to the limited supply and higher prices of lumber.

The Impact on Home Insurance

Now that we understand the factors behind the rising costs of lumber let’s explore how it affects your home insurance. It is essential to note that rebuilding costs are not the only expenses covered by your insurance policy. The insured value listed on your policy may also include debris removal expenses.

Debris Removal Costs

After a claim, debris removal costs come into play to safely dispose of the rubble left over from the incident. It is crucial to ensure that your insurance policy adequately covers these expenses, along with the rebuilding costs. Failing to include debris removal costs in your coverage could leave you with unexpected out-of-pocket expenses.

Co-insurance Clause

Many home insurance policies include a co-insurance clause, which requires policyholders to insure their homes to a specific percentage of the total replacement cost value. This clause ensures that homeowners maintain adequate coverage relative to their property’s value. If your property coverage falls below the required percentage, your insurance payout may be penalized in the event of a claim.

The specific percentage for the co-insurance clause varies across policies and insurance companies. Some policies may have an 80% co-insurance clause, while others may require 90% or even 100% coverage. Reviewing your policy and ensuring that your insured value meets or exceeds the specified percentage is crucial to avoid potential penalties.

Inadequate Coverage

Often, homeowners only realize that their insured value is inadequate after a claim has occurred. By then, it is too late to make adjustments to the policy. To protect your property adequately, reviewing your coverage limits regularly is essential. If you are considering remodelling or building a new home, keeping an eye on the lumber market can help you understand the impact on rebuild costs and determine the coverage you need.

Inform your insurance advisor about any upgrades or renovations you have made to your home. During the rebuild evaluation process, they will consider these details to determine the correct value to insure your property. Increasing the insured value of your home may result in a higher premium, but it can make a significant difference in adequately covering potential claims.

Protecting Your Property: What You Can Do

To ensure that your property is adequately protected, there are several steps you can take:

1. Review Your Limits: Regularly review your insurance policy limits to ensure they accurately reflect the rebuild value of your property. Stay informed about the current lumber market to understand its impact on rebuild costs.
2. Inform Your Insurance Advisor: Keep your insurance advisor updated on any upgrades or renovations you have made to your home. This information will help them assess the rebuild value accurately.
3. Consider Increased Coverage: If you anticipate rising lumber costs or plan significant renovations, consider increasing your coverage to account for potential price fluctuations.

Remember, you don’t have to wait for your policy renewal to review your insurance details. Reach out to your insurance advisor at any time to address your concerns and ensure you have the appropriate coverage for your property.

As lumber costs continue to rise, homeowners must ensure that their insurance policies accurately reflect the rebuild value of their properties. Understanding the factors behind the surge in lumber prices and their impact on home insurance is crucial for making informed decisions. By reviewing your coverage limits, informing your insurance advisor about renovations, and considering increased coverage, you can protect your property adequately and avoid potential financial setbacks. Stay proactive and vigilant to ensure your home insurance meets the ever-changing market conditions.

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