Rising Lumber Cost and How It Might Impact Homeowners Insurance
Here in the Garden State, our roughly 130 miles of beautiful sandy beaches to the east and Kittatinny Mountains to the west make us prone to all kinds of weather events. Sometimes, those events destroy property, making it expensive to rebuild, especially now because of the rising lumber cost.
Would your homeowners insurance cover those costs? Have you thought about what it would cost to rebuild if a weather event like Superstorm Sandy struck again, especially with today’s lumber prices?
Talking with the McMahon Insurance Agency is the best way to make sure you have enough coverage.
In the meantime, in this blog post we’ll help explain replacement costs, increasing policy limits, and everything you need to know about deductibles.
The Increasing Lumber Cost
With the extra money from pandemic-related overtime and government stimulus funds, many homeowners added home projects to their lockdown time, adding to the shortage.
Lumber prices are up 154% from one year ago, thanks to global supply chain issues, labor shortages, and a booming housing market, because of the global pandemic, according to Associated Builders and Contractors. It’s simple supply and demand.
Damage to your home because of a flood, fire, hurricane, tornado, or another natural disaster may cost more than what is covered by your homeowner’s insurance because of rising lumber costs.
Replacement Cost Changes
Should something happen to your home, the replacement cost is the amount of money it would take to rebuild with similar materials should your home be destroyed or damaged.
Check with your insurance broker to make sure you have replacement costs covered. As you make changes to your home, you’ll want to make sure your policy includes the full replacement costs.
Your homeowner’s insurance policy must cover at least 80% of the replacement cost or otherwise the insurance company may not cover the damages.
Incorrect replacement costs can leave you underinsured, so it’s important to make sure you have the right amount of insurance for the value of your home.
Your insurance broker will typically figure what it would cost to rebuild your home at today’s price due to lumber costs and increase your policy’s limits.
Increasing Policy Limits
Discussing increases in your homeowner’s insurance policy is a good way to make sure you have enough coverage so the lumber cost is kept in check.
Adding a guaranteed replacement cost policy or extended replacement cost policy would add an extra 20% more than what the current policy covers.
Costs can skyrocket quickly. If disaster strikes your neighborhood and everyone needs a new roof, not only does the cost of materials rise but also the demand for laborers. With high demand and fewer workers, costs increase.
Each insurance policy is different and some cover more than others. An increase in your policy limits can help you cover the bill.
New Jersey’s Weather
Increasing your homeowner’s insurance policy might be key, especially if your home could be hit by a hurricane or tornado, where lumber costs could make rebuilding unaffordable.
Hurricane deductibles are available in 19 states and the District of Columbia. Each state differs in its coverage.
In New Jersey, it applies to named stores from the National Weather Service, but only if the storm reaches 74 miles-per-hour or greater. The duration of the storm is 12 hours before and 12 hours after those sustained winds.
Flooding is NOT covered under your homeowner’s insurance policy, even if there’s a hurricane.
The average cost of flood insurance is $734 per year and there is a 30-day waiting period before it takes effect.
Flooding damage will cost 94,000 New Jersey homeowners an average of $4,400 per year, according to the nonprofit First Street Foundation. It’s a cost that will likely increase as the climate changes. Toms River and Ocean City will see much of those increases as the climate changes, meaning the lumber cost to rebuild will be higher.
New Jersey is the sixth fastest-warming region on Earth, according to scientists studying the issue with over 300,000 living in areas where inland flooding is an issue.
Fire Damage
If wood-frame houses and high-rise buildings experience fire damage, they are expensive to rebuild.
Wood-framed houses are more flammable than other materials and with rising lumber costs, it quickly can add a lot more to the rebuilding process. In fact, they can be almost eight times as much as other materials when used as the main construction materials.
If a wood-framed structure catches fire, it can be a total loss whereas a concrete structure could be repaired at a lower cost.
Wood also rots over time and eventually has to be replaced. With today’s prices, that means a higher cost.
Increasing Your Deductible
You might consider increasing your deductible, which would lower your overall costs. This would save you money on your monthly premium, but you should also make sure you have enough cash in the bank to make repairs, should they be necessary. If something happens and you’re stuck with higher lumber costs, you may pay more in rebuilding costs simply because you wanted a higher deductible.
Increasing the deductible is all about risk. If you think you’ll never make a claim, then you are taking a risk because you may never have to use the policy.
Wealthy people may decide to risk a higher deductible because they can afford expensive repairs out-of-pocket rather than filing an insurance claim to fix repairs to their home.
The average homeowner’s insurance cost in New Jersey is $1,052, according to the National Association of Insurance Commissioners.
Contact Us to Learn More
At McMahon Insurance Agency, we’re here to help you lower costs, increase your coverage and make sure you have the right coverage should something unforeseeable happen.
If the rising lumber cost has you concerned, we can help you get the best homeowner’s insurance possible.
In New Jersey, we get all kinds of dangerous weather: hurricanes, blizzards, floods, and even tornadoes. Remember that if one strikes your home, you may need some expensive lumber.
Contact us today to make sure you have the right coverage so you’re not left scrambling!