How Rising Lumber Prices Are Affecting Home Insurance Rates

Home Insurance

At the foundation of every home insurance policy is a crucial factor- a home’s replacement cost. This factor is used to deduce a replacement cost estimate, which is simply the amount of money required to rebuild your house from scratch if the whole structure is burnt down or destroyed in a hurricane or similar disaster. The higher this estimate is, the higher your premium will be. Unfortunately, over the last year, lumber prices have been on a steep climb, and this has also been reflected in replacement cost estimates, which in turn have escalated the home insurance rates.

How Did It All Begin?

In the early months of 2020, hurricane damages to property and timber in certain states resulted in increased demand for lumber. As an economic principle, an increase in demand usually results in a corresponding price increase. Further down the line in the year, the pandemic bloomed, causing a slowdown in timber production. This led to a further drop in supply, and many building projects were left hanging as lumber companies could not keep up with the demand.

This scarcity of resources resulted in a total rise of about 300% percent in lumber costs. Though the prices are slowly beginning to drop, they are still roughly at that same level. This increase is evident when the national situation is observed as a whole. However, the situation is better in areas that have been less affected by natural disasters and the pandemic, with lower demand for reconstruction.

How Does the Rise in Lumber Prices Affect Homeowners?

The high cost of lumber due to increased demand and shortage of supply signifies a corresponding increase in the cost of building a home from scratch. Hence, this will undoubtedly reflect on the present replacement cost estimate of your home. Construction costs have also risen with the shortage of labor and inflation. Although these are just a few factors that make up the replacement cost estimate, they are essential and decisive of the total cost.

Insurance policy providers are not on a “gifting spree.” Therefore, they take numbers very seriously. You might want to sit down with your provider to go over the details of evaluating your replacement estimate. Make sure to inform them of any renovations and recent installments to be included so that a thorough and accurate assessment can be made. This will save you many headaches, should there be a need for the home insurance policy to kick in.

What Should Homeowners Do Now?

To be properly covered, go over your replacement cost estimate with your provider, looking over intricate details of how it was initially calculated. It is best to be prepared to pay higher premiums due to the rise in lumber and construction costs, among other factors. Some other factors that will affect your premiums include:

  • Exposure of your home to natural disasters
  • Cost of different materials
  • Labor charges

When you are looking to protect your house property, contact our insurance professionals at American Premier Insurance. Our dedicated experts are ready to assist you with all your home insurance needs in Phoenix, Tucson, and beyond.