BUYING HOME INSURANCE
Some questions to ask yourself when determining what kind of coverage you need
When buying a property, whether it’s your first condo or an upgrade to a family home, there are many factors to consider. From getting a mortgage and building a household budget to renovations and decor, the list is endless. But one thing that should be considered a top priority is home insurance.
Unlike car insurance, home insurance isn’t mandatory under the law, but its importance is paramount.
“It is strongly recommended that homeowners purchase insurance,” said Caroline Phémius, spokesperson for the Insurance Bureau of Canada. “Not only will their insurance cover their home and its contents, but it will provide them and their family with liability insurance, which is a big help, should they be held responsible for a damage caused unintentionally to a third party.”
Even though it’s not a legal necessity, having home insurance is often a deciding factor in obtaining a mortgage, as many lenders won’t issue one without proof of insurance.
When shopping for coverage there are several things to consider before settling on a policy.
“Do your research, check out different insurers’ websites for tips and rate estimates,” said JeanFrançois Tremblay, associate vicepresident of underwriting at TD Insurance. “Don’t decide based on premiums alone; it’s just as important to get the right coverage that fits your individual needs and circumstances. This will help avoid any surprises when it comes time to file a claim.”
In determining your coverage needs, Tremblay said it’s important to think about the following basic questions:
How much of a loss are you prepared to pay for yourself ? This will help determine your deductible and limits.
How much would it cost to rebuild your home from the foundation up? And are there upgraded finishes like hardwood floors or crown mouldings that can be expensive to replace? Keep in mind that the purchase price of a home is not the same as the rebuilding cost, which could be higher or lower, depending on a number of factors.
How much would it cost to replace all of your personal belongings?
What living expenses might be incurred if you cannot live in or rent out your home during repairs? Homeowners are still responsible for mortgage payments and the cost of any utilities being used. If you are unable to cook, you may need to order in or eat at restaurants. Insurance can provide coverage for your daily living expenses over and above what you normally spend.
What if you are found liable for damage to others? Most home insurance policies provide personal liability.
“Can you afford to repair and possibly rebuild your home and replace all of your personal belongings,” Tremblay asked. “This would cause significant financial strain on most of us, which is where
insurance comes in.”
There are two main types of coverage: All Risks, which covers the largest range of losses, and Named (or Specified) Perils, which only provides coverage for losses that result from a specified list of causes. Aside from the type of coverage you choose, you also need to determine whether your policy covers Replacement Cost, which refers to the value of an item when it was purchased new, or Actual Cash Value, which takes depreciation into account.
“For example, if a policyholder with Actual Cash Value coverage were to have a flat-screen TV — purchased two years ago — stolen, they would not receive the amount required to replace the TV,” Tremblay explained. “They would receive the depreciated value of the two-year-old TV.”
In addition to initially choosing the coverage that best suits your situation, it’s imperative that you keep your insurance company updated on any changes to your property that could impact your coverage needs.
“Many people will live in their homes for a decade or more, and during this time may make changes that could be considered significant. Insurers call this a ‘material change’,” Tremblay said.
Material changes may include renovation projects such as a home extension, renting out part of your home, leaving it vacant for a significant amount of time, or opening a home business.
“Forgetting to provide an update could result in a policy being cancelled retroactively, leaving the policyholder without coverage for their loss,” Tremblay said. “When in doubt, review your policy or contact your insurance provider; it’s important to be familiar with the fine print of your policy so that you are clear on what the policy does and does not cover.”