Should You Update Homeowners Insurance Coverage as Prices of Lumber and Steel Skyrocket?
In the past year, the price of lumber has increased by 377%, according to an infographic from Visual Capitalist. It hit a record high of $1,635 per 1,000 board feet, when lumber has historically ranged from $200 to 400 per board foot, the website says.
Experts in the construction and contracting industries say this has pushed the price of a 2×4 from $3 last year to approximately $8 each, NBC San Diego reports. The reason comes down to the basic laws of supply and demand, with labor shortages and supply chain issues leading to a decrease in available lumber, while a convergence of factors led to increased demand for new homes. With extra cash to spare and time on their hands, many homeowners also took to lumber-intensive home improvement projects, such as building decks for their backyard hangouts, while they were stuck at home during the pandemic.
Meanwhile, steel, another key component in home building and home repair, has also seen a dramatic price increase in recent months, Reuters reports.
With these factors in mind, you may be concerned about whether or not you have enough homeowners insurance coverage if you lose your home in a fire or weather disasters. First, check your policy and see if it covers “full replacement value” for your home. Such policies are typically pricier but ensure you have the coverage you need in spite of rising costs.
If you don’t have a policy for full replacement value, you’ll want to make sure your coverage reflects the actual cost of rebuilding your home in today’s market. Additionally, if you made additions to your home during the pandemic, ensure your policy reflects your home’s correct square footage.
You may be surprised by how inexpensive it is to add coverage. Homeowners insurance is often included as part of your mortgage payment, with payments spread out equally over 12 months and the money held in escrow by your bank until it’s time to renew your policy. You may not even feel the difference.
My personal note:
This is not part of the original article but I wanted to share my experience with this situation. In the past year and a half, I've watched the value of my house and the price of lumber dramatically increase. I had often wondered if it would impact my insurance. Finally, I talked to my agent, Tanner, and she showed me that my carrier, West Bend, had calculated my rebuild cost for enough to cover the increase in lumber prices. She also pointed out that my carrier had a blanket coverage that would kick in if the rebuild amount wasn't enough. Her advice is to read your policy and contact your agent, because each carrier may handle this situation differently.