According to the Insurance Bureau of Canada, lumber prices have soared 120% in the last 12 months, fueled by a shortfall in lumber supplies and a slowdown in the industry from the pandemic.
What does this mean for homeowners and their insurance policies?
When you purchase a home, you must set up a home insurance policy with an insurance company. Your insurer will calculate the replacement value of your home.
Replacement value is the amount of money the homeowner will receive if your home needs to be fully rebuilt or repaired after a loss. While replacement value accounts for inflation and other adjustments, the cost of a the rebuild or repairs will not include the change in material prices, i.e., the two-by-fours your builder needs to reconstruct your home.
You can also opt for a guaranteed replacement cost endorsement on your home insurance policy, which guarantees the reimbursement of the costs of rebuilding your home based on the current value of your home, regardless of the price of construction materials.
The caveat of the guaranteed cost endorsement is much higher premiums on your insurance policy, regardless if you have a loss. There is no way to predict the direction of the price fluctuations of lumber, drywall, or steel – so making an informed decision at the outset of setting up your home insurance policy is key.
Will my insurance coverage be enough amid the rising construction prices?
No one can predict a significant loss to a home, like a fire. But you can be prepared for what happens next. Your homeowner’s insurance policy is unique, so don’t rely on your friend’s situation after their loss. They have a different home and a different insurance policy.
Contact your broker immediately if you’re unsure what would happen after an unexpected loss and how the changes could impact your insurance rates.
What if you plan on renovating or adding a structure to your home
As people see working from home as a long-term reality, many have decided to improve their surroundings. A new deck or a fence are common additions to homes in pre-pandemic times.
It’s no surprise that as the pandemic continues, home additions and renovations have significantly increased for homeowners. According to TD Bank, home renovations in Canada have soared 40% in the last year.
As well as spikes in lumber prices, there is a major shortage in other construction materials and delays in homebuilders receiving necessary products, such as steel, drywall, and plywood – causing prices in these materials to soar 200% since 2020.
If you plan on renovating your home or adding a fence or deck, contact your broker ahead of a possible loss. For example, if a fire breaks out during renovations and your home is damaged and needs to be rebuilt, your insurer should know your plans ahead of time if you need to submit a claim. Communicating with your broker is critical to eliminate headaches when the time comes to claim a loss.
Will I be Covered if I buy a brand New Home?
A hike in many construction materials (lumber, steel, drywall) has led to a massive increase in the price of new homes being built across the country, adding approximately $35,0000 to a new home’s price on the market.
A similar situation is afoot for people who want to renovate. If you’re set on renovating your home during the surge in construction materials, be prepared to pay an additional $30,000 to renovate a 2,500 square foot home. (Source: Canadian Home Builders Association).
The best way to ensure you have the right coverage if you need your home rebuilt, renovated, or you’re having a new house built is to call your insurance broker or insurer before any of the work starts.
A broker can tell you what your insurance rates will be and what to do if you have a loss at any stage.