Home insurance
Home Insurance, also known as homeowners Insurance, is an insurance policy that provides coverage for losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner. Most policies operate on an annual basis. Home insurance is not compulsory, although mortgage lenders require it, and getting some coverage is strongly recommended.
Types of policies
There are several types of insurance polices available for purchase.[1] [2] The names may vary slightly from insurance company to insurance company.
Basic / Named perils
This type of policy provides insurance for the building and its contents[3] for the risks that are specifically named. For example, this could include coverage in the event of "fire, lightning, explosion, smoke (not usually from a fireplace), riot and civil commotion, falling objects, aircraft/vehicle impact, and wind or hail".[2] However, coverage for "vandalism/malicious damage, water damage, theft and/or burglary" may not be included.[2]
If you opt for this type of coverage, make sure that the perils against which you want/need to protect your home are indeed covered. If not, you can add optional coverage for those (for a fee) or opt for standard or broad coverage.
Basic policies are the cheapest of the four main types (basic, standard, broad and comprehensive), but according to one provider, "named perils policies are usually offered for homes in unusual circumstances; for example, remote vacation homes without fire protection, homes under major repair or renovation, or very old homes without modern equipment."[4]
Standard
This type of policy provides similar coverage to the basic policy and "may include theft/burglary, vandalism/malicious damage, glass breakage, and certain types of water damage".[2]
Broad
This policy provides comprehensive coverage on the big-ticket items like the building and named perils coverage on the contents. In other words, the building itself will be covered against almost everything, apart from the standard exclusions, such as "overland flooding, water seepage, terrorism"[5]. But the contents of the home will only be covered for the perils listed in the policy, such as "fire, smoke damage, and theft", but probably excluding "mysterious disappearance (losing something), accidental damage, rip, stains and power surge".[5]
This is a mid-priced compromise between the first two types (basic or standard) and comprehensive insurance.
Comprehensive
This is the most inclusive home insurance policy; it covers both the building and its contents for all risks, except for those specifically excluded.
For example, such a policy could cover the following scenarios: "Child spilled nail polish remover on furnishings $3000" or "Watch lost while swimming $6000".[2]
No frills
Some insurers offer very basic or “No Frills” coverage for properties that don’t meet their normal standards.
Buying home insurance
Replacement cost vs. market value
When insuring your home you need to determine a value that is being insured. There are two main types, replacement cost and market (resale) value. Replacement cost is the cost to rebuild your home in the event it is destroyed. Market value is based on factors that are not directly related to the replacement cost, such as location, land value and amount paid for surrounding homes.
Discounts
Generally insurance companies offer a variety of discounts, such as for seniors, for claims-free histories, multi-line (if they also have your auto insurance policy), age of house, non-smokers, alarm systems, and professional associations. Make sure you are getting all the discounts you are entitled to.
There are many factors that affect the cost of home insurance, such as location, proximity to water, replacement cost, method of home heating (in particular wood stoves can be an issue), type of electrical service and wiring, age of roof and other uses of the house. See How Home Insurance Rates are Calculated for more details.
Deductibles
You can also control the cost of the policy by selecting different deductible levels. Most people think of $500 or $1000, but you could perhaps go up to $2500[6] [7] or even $5000 if your insurer allows it.[8] Milevsky reports that for home insurance, "the difference between covering the first $500 of damage (the standard deductible on home insurance) and the first $5,000 in damage can be up to half of the usual premium."[8]
Choosing a high deductible is a classic form of self-insurance, and typically means that the premiums your are not paying anymore should be saved up in a dedicated fund, so that when a loss occurs, the money is available to cover the loss.
How to buy
There are three ways to purchase a home insurance policy:
- from a broker who deals with multiple companies;
- from an agent of a specific company;
- directly from a company via a call centre or website.
Make sure to compare two or three quotes, using the same parameters for each quote (what is covered, deductible, etc.), as prices vary significantly between companies.
Claims
Statistics
The following table shows some statistics from the Office of the Superintendent of Financial Institutions relating to property insurance claims ("Personal excluding home and product warranty") for years 2011 to 2019:[9]
| 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011a | |
|---|---|---|---|---|---|---|---|---|---|
| Number of policies in force | 9 687 189 | 8 742 464 | 8 681 581 | 8 706 546 | 8 829 239 | 7 899 421 | 7 895 100 | 7 854 838 | 7 170 357 |
| Number of direct claims | 774 426 | 730 741 | 673 878 | 605 647 | 536 731 | 530 304 | 495 274 | 379 225 | 344 935 |
| Proportion of claims in one year | 8.0% | 8.4% | 7.8% | 7.0% | 6.1% | 6.7% | 6.3% | 4.8% | 4.8% |
| Direct claims in $000 | 5 866 706 | 6 010 619 | 5 145 106 | 6 344 503 | 4 410 153 | 4 634 974 | 5 173 605 | 3 767 174 | 4 051 940 |
| Average claim | $7 576 | $8 225 | $7 635 | $10 476 | $8 217 | $8 740 | $10 446 | $9 934 | $11 747 |
a Includes home and product warranty for 2011.
We see that every year, about 5 to 8% of policyholders make a claim, and that the average claim is in the $8k-12k range.
Being ready to make a claim
Film the interior of your home to show all your possessions. Or make a detailed list of what you own. Keep the film or list somewhere else (not in your home), or use a fireproof/waterproof safe. Should there be a fire or other catastrophe, this list or film will make the claim process easier.
Should you make a claim?
Making an insurance claim may rise your future premiums.[10] To find out if your premiums will rise, by how much and for how long, you can discuss the situation with your insurance company or broker. Then you can make an informed decision on whether or for to file your claim, especially for small claims.[11]
Generally, it is not recommended to make frequent small claims on home insurance.[10] According to MoneySense magazine, "Insurers will usually not renew you after your third claim in five years, even if all the claims were minor."[11] Knowing this, you can ask yourself if choosing a low deductible for home insurance makes any sense.
Consumer protection
Insurance company failures, although rare, can and do occur. That's why Canada's property and casualty (P&C) insurance companies fund a special program, approved by government regulators, to protect policyholders and claimants.
In the unlikely event of the collapse of a P&C insurer in Canada, the industry-funded, non-profit Property and Casualty Insurance Compensation Corporation (PACICC) will respond to claims of policyholders under most policies issued by P&C companies. You don't need to apply for protection; it is extended automatically to eligible policies.[12]
See also
References
- ^ Insurance Bureau of Canada, Types of coverage, viewed January 7, 2017
- ^ a b c d e Home insurance - Comparison of some common forms and claim examples, April 23, 2013, viewed January 7, 2017.
- ^ Insurance Bureau of Canada, All about home insurance, viewed January 8, 2017
- ^ What types of home insurance are available?, viewed January 8, 2017
- ^ a b Decoding Broad vs Comprehensive Form Insurance policies, April 24, 2012, viewed January 8, 2017
- ^ Rob Carrick, Ten ways to cut the cost of home insurance, The Globe and Mail, April 22, 2013, viewed January 7, 2017.
- ^ Romana King, Why your home insurance rates are rising - What you can do to keep your home insurance premiums low, MoneySense, May 21, 2015, viewed January 7, 2017
- ^ a b Moshe Milevsky (March 30, 2010). "The lowdown on insurance salesmen and warranty peddlers". The Globe and Mail. Retrieved January 21, 2017.
- ^ Office of the Superintendent of Financial Institutions, Financial Data for Property and Casualty Companies, Total Canadian P&C, Year to date: End of Q4 - 2019 (and preceding years), viewed January 26, 2017 and February 13, 2021.
- ^ a b Andrew Allentuck, Home insurance: Claim carefully, National Post, April 2, 2011, viewed January 24, 2017
- ^ a b Julie Cazzin, Insurance claims: Don’t worry, I’m covered -- When does filing an insurance claim make sense?, MoneySense, October 1, 2008, viewed January 15, 2017
- ^ Property and Casualty Insurance Compensation Corporation (PACICC), viewed September 12, 2012.
Further reading
- Financial Wisdom Forum topic: "Home Insurance"
- Financial Wisdom Forum topic: "Snowbirds and Home Insurance"
- Financial Wisdom Forum topic: "Insurance company wants to do a home inspection"
External links
- Home insurance - Wikipedia
- Homeowner's insurance - Bogleheads
- Home and Tenant Insurance - Insurance Bureau of Canada
- L'autorité des marchés financiers, Choosing Home Insurance
