Property insurance, also known as home insurance or homeowners insurance, is an essential part of owning a home. Purchasing a home is no small deal, and you will want to have it protected and insured in case anything were to happen to it. With all the information out there about home insurance policies, it can be very confusing to first-time homeowners.
We’ve put together this guide to make things simpler and to provide you with only the essential information you need to consider before making the decision to buy property insurance and to protect your investment. After all, it’s better to be safe than sorry!
We will go over what is included and excluded in a standard home insurance policy, what coverage types there are, and tips that could lower your premium.
What Does Homeowners Insurance Typically Cover?
Moving forward, it’s important to understand the basic things home insurance policies cover. Although policies are customizable, there are certain standards that insurance policies meet that outline what the insurer will cover. A standard home insurance policy will typically include three main types of coverage, which include dwelling coverage, contents coverage and personal liability coverage.
In the event of anything happening to the building you live in, or “dwell” in, whether that be a house, a condo, or an apartment, the home insurer will cover the damages or loss. Typically, the home insurer will cover the full amount of the repairs or cost to rebuild your home.
This can be damaged from a fire, lightning, hurricane, vandalism, theft or other covered disasters. These are known as “insured perils,” and should be clearly stated on your insurance policy. Your home insurer will compensate you for the repairs or the complete rebuild of your home, should the need arise.
Not all disasters or “acts of God” are covered under a basic homeowners insurance policy, so be sure to go over those with your financial advisor. For example, many do not include damage from earthquakes, floods, or damage from negligence. Freestanding structures that are not attached to the main property, such as sheds or garages, might also require their own separate coverage. Again, be sure to go over this with your home insurance provider.
Personal Property or Contents Coverage
Your belongings are also covered in a basic home insurance policy. Clothing, jewellery, electronics, furniture, and appliances will be covered if destroyed or damaged in an insured disaster. Stolen items are also covered in the event of a break-in, or if items are vandalized.
Coverage means that the insurer will pay to repair or replace whatever was stolen or damaged. Keep in mind that unlike the dwelling coverage where 100% of the costs were covered, contents coverage typically only covers 50-70%. Discuss the exact amount covered with your financial advisor.
You may also purchase extra coverage for especially valuable items like electronics, jewellery, fine art pieces, etc. If this is something you need, it would be useful to learn how to take inventory of your home. In most cases, serial numbers, pictures, proof-of-purchase, and appraisals may be needed in order to claim the money you are owed by the insurer.
Personal Liability Coverage
Liability coverage will protect you if you unintentionally injure someone on your property. If someone decides to file a lawsuit against you, the insurer will pay for the legal and medical expenses. This may also include if you cause damage unintentionally on someone’s property, for example, breaking an expensive vase. And if someone injures themselves due to the broken vase, the insurer can cover medical and lost wage expenses there too, as if someone had been injured on your property.
The coverage for personal liability does differ with each standard home insurance policy. The amount of coverage you need, and the type, will affect your insurance premiums. Discuss this with your financial advisor in order to figure out what best supports your needs and what will fit into your budget.
What Is Excluded From Homeowners Insurance?
Now that we have gone over the basics of what a standard home insurance policy covers, it makes sense to go over what is not included. Some items were already mentioned above, but let’s take a closer look here. These can be known as uninsured activities, exclusions, or perils and they are risks that insurance companies will not cover.
These can include:
- Infestations by animals, vermin, mold, or fungus.
- Negligence by not taking proper care of, or disregarding, means to protect your home. For example, not installing any smoke alarms because you have coverage against fires.
- Flooding, which can include sewer backup.
- Business use. For example, if you run your business out of your home, this would require separate insurance.
These are only some examples of exclusions and it’s important that you speak with your insurer about the things which are not covered under your policy. You have the option to become insured against most of these exclusions if you opt to buy separate coverage for them. These are called endorsements. Any endorsements you decide to add will be an additional cost to your premium for the extra coverage.
What Determines Your Home Insurance Cost?
The cost of your home insurance rate will depend on how much coverage you opt-in for, your location, your credit score, and your home’s value. As you can see, the cost can vary quite a bit from person to person. The average cost of home insurance in Canada is about $840 annually. Some more examples of what insurance companies usually consider:
- Your claims history and your neighborhood claim history.
- Your coverage, credit score, and deductible.
- Your home’s age and the condition of your home.
- How much it would cost to rebuild your home.
- The distance from your home to the nearest fire hydrant.
- Items in the home or on the property which can be considered accident-prone or dangerous, such as a trampoline or swimming pool
If it seems like your premium is a little too high, there are a few ways you could shave it down a few dollars. We’ll cover these in the next section.
Ways to Lower Your Home Insurance Rate
Although it is not recommended to cheap out on proper coverage for your home, there are some ways you can save money on your insurance premium.
Multiple Policy Discounts
Most insurance companies offer discounts if you have multiple policies with them, or offer bundles which could potentially save you money. For example, if you have auto insurance with a company already you should see if they will offer you a discounted rate if you also purchase home insurance through them.
Raise Your Deductible
Like other types of insurance, raising your deductible (what you pay out of pocket), will lower your rate.
Pay Off Your Mortgage
This can lower your rate greatly because insurance companies view the fact that you own your home 100% makes you less of a liability.
Compare Rates Between Different Insurance Companies
When you are shopping for a property insurance policy, be sure to get rates from at least five different insurance companies. This allows you to compare them and pick the rate you’re comfortable with. Maybe your place of employment has options for group coverage that you can take advantage of. You should explore all your options before committing to a policy.
Even after you do decide, it would be useful to review your policy and make note of any changes, which could lower your premium at least once a year. For example, maybe you’ve gotten rid of your pool or paid off your mortgage, this would lower your rate.
After considering the coverage of standard home insurance policies, what is excluded, and what options you might have in terms of extra coverage, we hope you have a clearer picture of what homeowners insurance entails. If any of this is still unclear, we urge you to ask your insurance providers as many questions as you can. In the end, you decide how much and what type of coverage would best suit your needs. Don’t waste money paying for an insurance policy that doesn’t serve you.