Home insurance, commonly known as homeowner's insurance, is a type of insurance policy covering a private residence. If you are thinking about purchasing a new home, you will need to understand precisely how home insurance works. Understanding your home insurance will, without a doubt, avoid making mistakes when choosing what is the best right coverage for you. We are here to help you get the best insurance deal for your new home.
Most homeowner insurance in the Canadian market is a combination of the following insurance types:
- Liability Insurance
- The buildings
- Contents
- loss of use (additional living expenses)
- or loss of other personal possessions
Most importantly, homeowner insurance provides some financial relief against disasters.
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Overview of Homeowner Insurance
Homeowner Insurance Coverage
As above, homeowner insurance is a multiple-line insurance policy that includes property insurance and liability coverage. It comes as an indivisible premium; that insured only pays a single premium for all declared on the insurance policy.
- Homeowner insurance covers Liability, damage to property caused by the owner or members of their family to other people, and damage caused by household pets. (see homeowner with dogs)
- The cost of an insurance policy or premium often depends on what it would cost to replace the house, known as replacement cost, additional endorsements, and riders attached to the insurance contract.
- The insurance policy is a form of agreement between the insurance company and the homeowner (known as insured). This contract indemnifies and returns the insured to the financial state before the loss.
Like most insurance policies, a home insurance policy will have exclusion, including floods or war, including a nuclear explosion from any source—this exclusion, amongst other standard exclusions (like termites). In exceptional cases such as floods, the homeowner can purchase additional insurance options separately before the incident. Insurance price varies to reflect the replacement cost, usually upon applying an inflation factor or a cost index.
All homeowner insurance packages will have Liability bundled with building, contents, and other extension coverage.
What is Liability Insurance Coverage?
You might wonder why you need liability insurance in your home. Why does your home insurance include liability insurance under the policy? Liability insurance offers you protection against lawsuits and any fines when either you, your family, or the pets hurt or cause damage to someone else or another property. For instance, when a visitor falls down the stairs breaking his hip in your house due to snow, garbage or toys left unintentionally. Under the circumstances, you are likely to be found responsible for their injuries. The insurance company can pay their medical bills or any other incurred damage. This coverage could also include the legal fees you will incur when dealing with these types of claims. Please note that liability insurance only covers accidents happening to people visiting you or damage to others' property but not you, your family, or your property. The property insurance section of your homeowner's insurance will cover your property, not under Liability. There has been misconception from insured when they see millions of dollars on liability section and assume they have coverage up to a million on whatever they owned. Such perception is wrong.
To verify what liability coverages and limits are under your policy, you will need to consult with your insurance provider.
What's included in the Building Coverage?
The building coverage protects both the primary and detached structures. It may include garages, sheds, and back houses on the property up to a limit. Always ensure the property is covered sufficiently with replacement costs. However, some insurance companies may not cover structures such as boundary walls, fences, gates, paths, drives, or swimming pools. It is important to check the specific policy wording as the insurance companies have their coverage criteria.
What is Exterior Building Coverages on common home insurance?
If you have comprehensive insurance, it is more than likely that insurance may offer protection for most structures that form part of your home. It might include storage sheds, garages, porches, and gazebo areas. You will only need to check with your insurance policy to verify if your insurance policy has exclusion on them.
Since insurance policies vary among insurance providers, it will be wise to consult your insurance specialist if you do not have a comprehensive option. Some "Broad" or "Standard" option home insurance may offer to cover these structures. Still, it may have several exceptions, so be certain to check them out.
What is included in Contents Coverage of a home insurance?
Contents insurance covers personal belongings, such as furniture, clothes, electronics, etc. Most insurance will limit the amount of money paid out for each category of items. Each policy may vary in the amount of coverage provided. Check for a limit on each personal belonging. The total amount on policy content may not cover you fully on your jewelry if the limit is under the class. Should you have more on jewelry, stamp collection, art and crystalware, you may want to schedule them separately by purchasing separate "schedule item" or "floater."
What are the Common Exclusions on a home insurance policy?
Some homeowners insurance policies will have exclusions on liability coverage. The most common exclusions are:
- Depreciation or wear-and-tear maintenance. (see)
- The faulty craft of builders or contractors
- Mechanical or electrical breakdown
- Amount over the limits of the policy
- Vacant or empty home or tenant is living in it.
What are the Covered Perils in home insurance?
Most buildings and content insurance offer "named perils" and "open perils" types. A "named perils" policy provides coverage for a loss specifically listed on the policy. If it's not listed, it's not covered.
What is Named Peril?
There are various types of content coverage on homeowner insurance. The Named Peril is a type that describes how insurance protects against perils in a loss claim. It covers only the list of risks found in the insurance policy. This type of policy mostly protects vacant or unoccupied buildings.
Depending on the insurance policy, the wording may cover the following perils (always check your insurance policy):
- Fire
- Lightning
- Windstorm or hail
- Explosion
- Smoke
- Vandalism
- Aircraft or vehicle
- collision
- Riot or civil commotion
- All basic-form perils
- Burglary, break-in damage
- Falling objects (e.g. tree limbs)
- Weight of ice and snow
- Freezing of plumbing
- Accidental
- water damage
- Artificially generated electricity
What is All-Peril or All-Risk?
"All Perils" policy is broader in the sense that it will provide coverage for losses on everything except exclusions on the insurance policy. It is another special form of coverage and is the most inclusive. The difference with "named peril" policies is that they protect all losses unless specifically excluded. Insured will be covered on a peril, not on the exclusion lists. Unfortunately, if something happens to your home, the event is listed on the exclusions list, it will not provide coverage.
Exclusions list of homeowner insurance:
- bylaw or Ordinance of law
- Neglect
- Movement of earth or Earthquake
- Flood
- Power failure
- War
- Nuclear hazard
- Intentional acts
So, in short,
i) Named peril will cover only on the list
ii) All Peril will not cover if it is on the list (of exclusion)
Think of it as, All-Peril covers everything except those listed, but named-peril covers only listed, not anything more.
What Coverage is available in Home insurance package?
As you might have already learned, most home insurance packages offer liability protection for homeowners and property protection which also covers personal contents. Moreover, most insurance companies like to differentiate their insurance package offers with Comprehensive, Broad, or Standard. The major differences are the building and content, except for additional living, claim-free protection, cyber, and others.
Comprehensive
Comprehensive homeowner insurance will cover every risk (All-peril) unless the policy declaration states it as exclusion or not covered under your policy. It has complete All-peril coverage for both your property and contents in case of unexpected incidents.
Standard
As the name suggests, standard home insurance is basic home insurance coverage. The insurance under this option will only cover damages caused by the risks, also known as perils, that are declared under your insurance policy. The intention of such a policy is mainly to cover fire and theft most of the time.
Broad
The broad coverage sits in between comprehensive and standard insurance when it comes to the level of coverage. Like Comprehensive insurance, Broad insurance will cover your buildings against all risks unless some are stated as excluded under your policy. Like Standard insurance, Broad insurance will only cover your contents from situations directly listed under your insurance contract.
Take a look at the comparison matrix:
|
|
Building |
Content |
|
Comprehensive |
All-Peril |
All-Peril |
|
Broad |
All-Peril |
Named-Peril |
|
Standard |
Named-Peril |
Named-Peril |
More About Home Insurance
Insurance Deductible Meaning
An insurance deductible is the amount of money you must pay to carry out a claim. It is usually a set amount, but it can also just be a percentage of your insurance policy's overall amount of coverage. A deductible ensures both you and the insurance company share responsibility for the risk on your property.
Insurance Deductible
Suppose the damages caused to your property are less than your deductible. In that case, the insurance company will not play a role in paying for losses. It will only be your responsibility to pay the amount because you agreed to be responsible for it in exchange for a lower premium. For instance,
- If the repair is only $1000, but your deductible amount is $2000, Your insurance will have no responsibility to pay.
- Now let's say if your deductible is worth $2000, and the extent of the damage is worth $2300. If you claim, the insurance company will only pay $300, and you will have to top up the rest.
Deciding whether to file a claim in such a case depends entirely on you. But keep in mind that the insurance company will only pay their part after paying for your deductible when you make a claim. So you might ask yourself whether it is worth claiming when the damage only goes a couple extra hundred dollars on top of your deductible. A claim is a claim, so it might end up increasing your premium in the end.
Would a higher deductible decrease insurance Premium?
When you have a low deductible, you will pay less out of pocket when accidents occur. However, this also means you will have to pay more insurance premiums to balance out the coverage.
On the other hand, having a larger deductible means a lower premium, but what you pay upon an accident will be larger.
So even though you might want to choose a higher deductible, you should also consider your economic situation if an accident does happen. You will need to pay for that very high deductible all at once for insurance to do its part. If you don't have the money at the time, then you will find yourself in trouble.
What are the Risk factors that result in higher premiums?
Insurances consider several risk factors before determining the amount of money you pay for your home insurance. The higher the risk, the higher the insurance rates will be. For example:
-Location of the house. Insurance will consider whether you live in a dangerous neighbourhood or in a zone that is prone to floods or likely to get forest fires.
-condition and age of the house. The older the home or the more unstable its shape, the more prone it will damage.
- Proximity to a fire station. Or other elements that might ensure house security, like a hydrant. Leaving near these will result in a lesser risk in case of accidents.
- Your claiming history. You will be a higher risk to insurance if you have an extensive claiming record.
- Recreational structures in your house. Having pools, trampolines, and playgrounds might present a higher risk for insurance.
Plenty of insurance companies exist countrywide, so it is necessary to let different insurance companies assess risks before making a final decision. Ask an insurance broker for a comparison from the market.
Investing in my house
'The amount of money you pay on insurance varies from company to company. But there is nothing important as knowing to protect all your valuables in case of a disaster. So, you need to invest in your house more to ensure you are getting better deals. The age and construction of your home play a huge role in getting you better premium deals from insurance companies. The types of materials you use in construction, such as brick, security systems, smoke detectors, and sprinkler systems, all have a different rating to the insurance company. Furthermore, having an outdoor spa, a hot tub, or a swimming pool increases your premium since you will need liability coverage.
How do I get cheaper home insurance?
Do your Homework
There is no restriction that you must stick to a specific insurance company. Therefore, ensure you look at three or more different insurance companies and compare their prices. An insurance broker can help as they shop around on your behalf for the best rate.
Raise your deductibles
A higher deductible means you are paying little premiums. Before going this route, ensure your house is not at risk of frequent damages, as this will lead you to lots of claims.
What are the Claims Process for Home Insurance?
Important: Always safety first.
After a loss, the insured must take steps to mitigate the loss. Insurance policies require the policyholder to notify the insurer within a reasonable time. A claims adjuster is assigned to investigate the claim. Insured may need to provide information such as ownership, receipt, etc. Filing a claim will increase insurance rates, and multiple claims can result in non-renewal or cancellation. Most insurance companies will share the claim data in an industry database.
After an intense rainstorm blew off half of your house roof, let's say. You will want to file for insurance after you ensure your safety and prevent further damage from happening (maybe by picking up the blown shingles). Here are some steps you might want to take to claim insurance:
1. Call Your Broker.
Provide your broker with the information regarding the extent of the damage. You will want to provide a list and documentation highlighting the losses that result from the rainstorm, photos and sometimes, your insurance policy number.
2. Investigation.
Your insurance will send a professional known as an adjuster to investigate the incident then determine the actual extent of the damages caused by the storm.
3. Review
Your insurance will then review your policy to determine if all damages caused by rainstorms are covered. Then insurance will inform you of the deductibles applicable to this case. The insurance company will also provide you with a list of possible contractors you might consider to do the repairments.
4. Payment.
The insurance company will pay you for the repair or construction once the contractor completes it. Always ask for a receipt from the contractor as the insurer will need evidence or repair done to continue with insurance.
In some situations, the payout may be made from the insurance to the contractor directly. Still, it will depend on your insurer's arrangements. Check your homeowner insurance policy for wording and talk to your insurance broker. Get homeowner insurance quotes online.
Don't forget to download the home inventory list from Here to keep track of what content you have
ConclusionHome insurance is essential as it will provide you financial protection when accidents occur, destroying both your home and property. It is your responsibility to protect your belongings, and we are here to help you. |
