Everything You Need to Know About Home Insurance
By Michelle McNally – a news writer for Livabl, specializing in buyer guides and market explainers.
Home insurance is exactly what it sounds like—a type of insurance for your property and its contents that protects against damage, liability, and loss. While home insurance isn’t mandatory in Canada, buying a home is one of the largest purchases you’ll ever make, so it’s worth your time to invest in protection in the event of any sudden mishaps.
“Insuring your home is a big thing. You want to be able to protect one of the biggest investments that you’ve made in your life,” says Matt Hands, business director of insurance at Ratehub.ca. “You want to make sure you get the right coverage, at the right price that fits within your means.”
Determining the best kind of home insurance coverage for your needs can feel overwhelming to navigate with so many providers and options available. To better understand how to sufficiently protect your residence, Hands offers some of the most important aspects every homeowner should know about home insurance.
Why and when do I need home insurance?
Unlike auto insurance, home insurance isn’t government-mandated, but that doesn’t mean it’s not crucial to have.
Hands explains most mortgage lenders today will require you to secure home insurance in order to protect the asset they’re financing. Having insurance can also give you peace of mind by knowing you’re covered when something unexpected happens, like a burglary, an on-site injury, or damage caused by a storm.
“[The] flooding of basements is very common and those can range from $30,000 to $40,000 easily, especially if you have a finished basement and you have to replace all of the carpets and tons of furniture,” said Hands. “Having that level of coverage provides peace of mind knowing you’re covered in any of those scenarios.”
Hands notes it’s important to have your home insurance kick in on the day you move into your property. This can be especially helpful so you’re covered for liability with movers or repair people on site.
When searching for home insurance, Hands says it’s beneficial to shop around and explore the various types of options and prices out there, especially since insurers will each have different methods of determining your premium.
A premium is the amount the homeowner pays to the insurance provider on an annual or monthly basis for assuming the risk of the property. Premiums are calculated using a number of factors about the home which determine how likely the property will require an insurance claim.
Asking your insurance broker questions and comparing options can be the most effective way to get the best rate and coverage designed for you.
“No two insurance companies will rate you the same way. They often will look at similar factors that go into a price, but they weigh them differently,” explains Hands. “They could be looking for different types of customers that meet different criteria.”
What types of insurance are out there?
According to Ratehub.ca, the average cost of home insurance in Canada is $960 per year, but the price you’ll pay for your specific property will depend on a number of factors.
There are three major types of insurance in Canada—home, condo, and tenant. At a basic level, insurers will assess the property’s size, location, construction materials, appliances, replacement costs, and upgrades to assess the home’s risks and calculate the insurance premium.
The type of insurance you require will also play a role in determining your premium. For example, Hands says the cost of insurance of the average home in Ontario is around $1,250 annually, which is slightly more expensive than condo insurance, which averages between $700 and $1,000.
If you’re trying to lower your premium, paying your insurance on an annual basis, increasing your deductible, combining it with your auto insurance, or even asking for a discount from your provider can all cut down on costs.
How much coverage and protection can I buy?
Once you’ve determined the type of insurance you need, you’ll next need to choose the level of coverage. According to the Insurance Bureau of Canada (IBC), there are four common varieties of home insurance policies, all of which have different levels of protection.
A comprehensive coverage insurance policy will protect the physical building and its contents against all insured perils—an event that will cause damage—except for those specifically excluded. Uninsurable perils, like earthquakes, and optional coverage, which is additional protection that’s not automatically part of the insurance policy, are not typically included in comprehensive policies, as per the IBC. However, comprehensive policies are considered to be the most inclusive in terms of how much they cover.
Basic policies will cover only the perils explicitly named in the policy. For that reason, these are generally among the cheapest insurance options.
If you’re looking for a middle-of-the-road insurance package, a broad policy will apply comprehensive coverage on big-ticket items like the building, but also named perils for the home’s contents. Finally, if your home doesn’t meet typical insurance requirements, like if it has extensive physical problems, a no-frills policy for these specific cases could be available from your provider.
Hands points out determining what kind of coverage you need will largely depend on your property’s location. Environmental factors such as floodplains and earthquake-prone areas could cause damage to your property, but not all insurance policies will protect you against these elements. Hands says you may be required to include a form of optional coverage known as an endorsement in your policy.
“Basic coverage doesn’t include sewer backup or overland water, which is considered flooding endorsements,” says Hands. “Those are the things you probably want to add if you’re in an area that is prone to flooding.”
In addition to the physical building, insurance endorsements can also protect specific contents on the property. For instance, if you own high-value items like jewelry or art, a provider may only allow you to claim up to $6,000 in coverage for such items, Hands explains. However, an endorsement for high-priced items in your insurance policy would provide you with full coverage in the event of theft or damage.
“A lot of people assume that because they have contents coverage that everything inside their house is going to be covered, which isn’t true,” says Hands. “There are limits to the amount they’ll cover on certain items.”
What do I need to do to make a claim?
If an incident occurs on your property, Hands says to report the event to your insurance provider as soon as possible to start the claims process. Documenting all aspects of the incident with photos, receipts and notes, and keeping a log of lost items will help greatly with processing your claim and getting reimbursed.
“You can never over-document a scenario,” says Hands. “Take pictures, jot down notes. Just like if you were ever in an accident, you want to document everything right away so it’s fresh in your mind.”
You’ll be required to pay a deductible, which is the cost you’ll use to cover damages before your provider pays out. Hands explains your provider will also be able to give guidance on what to do and what not to do when accidents happen on your property, especially in cases where repairs are required. For example, your provider may only work with approved contractors to ensure the quality of the repair.
It’s always good to keep your insurance provider in the loop when big upgrades or changes happen on your property, not only to ensure you’re fully protected, but also to prevent a scenario where you’re violating your contract and therefore jeopardizing your claim. For example, many homeowners have been undertaking renovations or setting up a home business during the COVID-19 pandemic. These cases require updating your provider since you’re potentially adjusting the replacement costs of materials and adding greater liability or risk to the property that would require coverage.
“It’s always important to update your insurer, to keep them in the loop of what’s going on with your property,” says Hands. “They often refer to that in the industry as ‘material misrepresentation of facts’ or ‘negligence’ or outright lying if they think that you’re purposely hiding facts from them just so you can get a cheaper rate.”