In February 2017, in Canada, the average value of a house was calculated to be over half a million dollars. In Quebec, we’re spending an average of $280,333 to take up residence in a house. There is no more precious material good a person can own, and all our other possessions can usually be found between its four walls. What’s more, this material item is usually associated with a significant mortgage… Which means, if disaster strikes, the debt won’t disappear with the house.
Why buy home insurance?
Theft, water damage, fire, vandalism… There are countless terrible things that can happen, and they don’t just happen to other people. Ask your neighbours!
Buying home insurance to protect your home in case of damage will also provide you with liability insurance. No matter how careful you are, you can end up being liable for any number of incidents of varying degrees of seriousness.
Home insurance won’t protect you from all these risks, but it will protect you from the disastrous financial consequences that can result. Living through a robbery is bad enough, why should you worry about your finances on top of it?
How to choose home insurance
The AMF (Autorité des marchés financiers) suggests that you first evaluate how much protection you need so you can then select the right amount of home insurance coverage. Do this by making a list of everything you own and its value. Take the time to do the exercise; we all have a tendency to underestimate how much we own. Then you need to know the reconstruction value of the property, which might be different than its market value. That way in case the worst happens, you’ll know you have enough coverage to rebuild your home, regardless of the state of the real estate market. Don’t hesitate to call an insurance professional to help you.
Once you’ve identified your needs, assess each clause in the proposed coverage with them in mind. Do you need to re-evaluate the limitations of your insurance, given your stable of high-end bikes? Is your hot water tank really less than ten years old, as is required for the insurer to cover the risk of water damage to your basement? Did you forget to factor in the breed of your dog, or the many trips you take each year to the estimate of your coverage needs for civil liability? You need to look at everything if you want to be truly protected against unpleasant surprises.
Insurance needs vary depending on whether you own a house, a co-ownership, or if you rent or own an income property.
What about the deductible?
The deductible is the initial amount paid by the insured person in case of a loss.
In general, the higher the deductible, the lower your premiums (meaning, the amount you pay each year to get the coverage). Depending on your risk tolerance, you might choose a higher or lower deductible. Your financial situation might compel you to take coverage with more affordable premiums, without considering how high the deductible will be if you need to file a claim.
Home insurance contracts also sometimes include exemption clauses related to the deductible, mainly in case of a significant claim.
What home insurance does and does not cover
The Insurance Bureau of Canada lists these as risks that are generally covered by home insurance policies: damage related to wind, hail, lightening, fire, explosions, smoke, a leak or overflow of a sanitation facility, theft, vandalism, falling objects or vehicle impact, and rioting. But beware! The risks covered differ from one contract to another and may even differ from one company to another!
Risks related to pollution, war, nuclear risks, flooding caused by floodwater and landslides are generally not covered but could be with an option. Nor is any damage resulting from negligence on the part of the insured, for example damage related to the unrepaired wear and tear of the home’s exterior, mould or vermin.
Note that standard coverage generally doesn’t cover damage caused by water infiltration through the roof or sewage backup. It is, however, possible to add this coverage for an additional cost.
What do you need to provide the insurer?
In order to build a profile of the person to be insured, the insurer will ask a number of questions to identify the risk factors of the property and its owner (for civil liability). You should therefore expect to be asked to describe your property in great detail, for example the condition of the roof, its heating system, its geographic location, etc., and to provide personal information like the age of the occupants of the house, what they do for work and even their habits, notably whether they ever work from home and if they smoke. The insurer will then be able to suggest coverage and calculate a premium that they consider fair based on the level of risk you incur (and expose them to).
If a claim is made, the insurer has the choice to repair, replace or refund the damaged goods. You may be asked to provide proofs of purchase.
It’s true that picking the right insurance coverage takes a bit of time, but this will allow you to avoid a great deal of worry at a time when you have enough to worry about already. Support from an insurance broker can sometimes make things easier.
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(1) The Canadian Real Estate Association