Are you under-insured? The impact of rising lumber costs

At Alpine Insurance, we want to make sure that our clients are aware of industry trends that could significantly impact their insurance coverage. We work with you to ensure that your home or building is adequately insured. One of the factors that have greatly affected the cost to rebuild or repair damage to a home or building is the rising cost of lumber due to the COVID-19 pandemic. Keep reading for more details (Original source: )

Lumbar Wood

Rising lumber costs may leave your buildings under-insured

Your home or your business has been damaged – maybe by a fire, flood, or some other disaster. You report the loss to your insurer, and an adjuster comes out to do an evaluation. Then you get the call no one wants – you find out the cost to rebuild or repair the damage is more than you’re insured for, and you’re going to have to pay the difference.

The risks of being under-insured

People are often under-insured for the correct value of their home, business, and/or farm buildings, particularly when they choose a specific limit of insurance on their policy. Too often, the problem only becomes clear when they go to file a claim.

For example, if your home, business, or farm building burns down, you may not have enough coverage on your policy to rebuild it. Even though that building is listed on your policy, the correct value of the building may not be – and your limit of insurance may not be high enough to pay to rebuild it, based on today’s costs. Your insurance adjuster will also need to account for the cost of clean-up and debris removal, as well as re-landscaping your property.

When thinking about insurance, you need to consider two things: how much it would cost to fix or rebuild your building, and how does that compare to the insured value and policy limits you choose?
Keep in mind that real estate or market value – how much you could sell your home or business for in the current market – isn’t the same as insured value. Insured value is how much it would cost to rebuild it. Your Alpine insurance broker can help you determine that value.

The cost of lumber has skyrocketed

Since the COVID-19 pandemic began, the price of building materials – particularly lumber – has been steadily climbing. At the same time, it’s been getting harder to source those materials. Early on, lumber mills across North America laid off staff and operated at a slower pace. Canadian mills have since hired back some staff, but it’s taken time to ramp up production, while many U.S. mills have yet to resume production. In the States, mortgage rates are low and the demand for new homes is high, so a lot of Canadian lumber is heading south, but the demand for lumber is also high here.

Softwood lumber prices rose by 118.9 percent in Canada between March 31, 2020, and March 31, 2021. That’s the largest year-over-increase for softwood lumber ever reported by Statistics Canada. In March 2021 alone, Canadian softwood lumber prices rose by nearly 12 percent, and prices for veneer and plywood products rose by more than 20 percent, Statistics Canada said.

In May 2020, 1,000 board feet of 2×4 lumber (Eastern spruce, pine, and fir) were selling for just over $500. On April 30, 2021, the same wood was valued at $1,745, according to Natural Resources Canada. This has increased costs for framing, cabinets, doors, windows, and flooring.

With lumber becoming harder to get, composite wood – such as plywood, medium-density fibreboard (MDF), and oriented strand board (OSB) – is now being sold at far higher prices than it was a year ago.

More than 90 percent of Canadian homes are wood-frame buildings, so any damage to your home right now could be very expensive to repair or replace. And this isn’t just a city problem – small-town lumber shops and builders are also facing supply issues and higher material costs.

Policy limits and “insuring to value”

What does this mean for you? That depends on the choices you make when you insure your home and any other buildings you own, with advice and guidance from your Alpine insurance broker. The options include:

  • Guaranteed Replacement Cost (GRC). If you choose this option, you will be covered for whatever it takes to rebuild your insured buildings. Ask ⦁ your broker if it’s an option for you.
  • Co-insurance. If GRC isn’t an option for your property, we recommend insuring to 100 percent of the replacement or actual cash value – this gives you a cushion when there’s a cost increase beyond normal inflation, and protects you from having to pay a co-insurance penalty.

If you have questions about co-insurance, your broker can help.

Talk to your broker

If you’re not sure about your policy limits, or you’d like to re-evaluate the coverage you have, give your Alpine broker a call. Your home and other buildings are likely the most expensive things you own. Make sure you know what they’re worth, and protect them (and your financial future) accordingly.

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