Home Insurance 101: What it covers and why you need it
Published: April 21, 2020
Part of our Adulting Series - Guest Post from Sonnet
Your home isn’t just a house – it’s where you live, love and create memories. It’s also one of the biggest investments you’ll ever make, so it’s important to ensure your home is fully protected against unexpected events that might catch you off guard financially. That’s where home insurance comes in. Many first-time home buyers (and even some longtime homeowners) aren’t sure where to start when it comes to buying home insurance, so we’re here to shed some light on what it is and why you need it.
Homeowner’s insurance is your home’s financial safety net. It protects your home – and you! – if the worst happens (like a house fire, for example) and you can’t afford to repair or rebuild. It also covers certain legal expenses associated with the ownership and operation of your property, related to an insured event (but more on that later). And if you have a mortgage, your lender will require proof of insurance to protect their own financial interest in your property.
Let’s start with the basics. Home policies typically carry certain standard coverages, which include:
- Home and other structures. Insurance pays to repair or rebuild your home if it’s lost or damaged due to a covered event like fire, lightning or a windstorm (among other things). It’ll also cover other structures like your detached garage and shed.
- Personal belongings. A home isn’t just four walls – you also want to protect what’s inside it in case of damage, loss, or theft. Your insurance covers anything you own that you could pack in a bag or put in a moving truck, whether it’s in your house or not, even if you’re travelling. But, there are some items – like jewellery, bicycles and fine art – that might only be covered up to a certain amount unless you purchase special additional coverage (also called scheduling an item).
- Liability. Let’s say there’s a fire in your home that damages the neighbour’s house. Or, you forgot to clear the ice on your steps, and someone slips and gets hurt. Your liability covers medical and legal expenses if a visitor is injured at your home or if you cause unintentional damage to another person’s property.
- Extra expenses. What if you can’t live in your house while it’s being repaired or rebuilt? This part of your coverage will reimburse you for hotel rooms, restaurants and other incidental costs that add up if you have to live somewhere else while you’re waiting to move back home.
And, here are a few optional coverages that aren’t automatically included but can be added to a home policy for additional protection:
- Sewer backup. It might be optional, but adding this coverage to your policy will help in certain smelly situations. If water backs up or escapes into your home through a sewer, sump, septic tank, or floor drain, this coverage will repair the damage. Even with this coverage, it’s always wise to prepare your home against sewer backup.
- Overland water. This coverage protects your home from damage caused by fresh water coming in through your windows and doors at ground level. Fresh water comes from rivers or lakes, or it could be the result of a rainstorm, spring run-off, or melting snow or ice.
- Earthquake. If you live in an earthquake-prone area (like B.C. or near the St. Lawrence and Ottawa River valleys), this protection is definitely worth adding. Without it, you’d only be covered for damage from fires caused by the earthquake – like from a broken gas main – not from the earthquake itself.
It’s very important to understand what your home insurance doesn’t cover so there are no unpleasant surprises should an uncovered event occur. As mentioned above, you’ll need to purchase additional coverages if you want protection against sewer backup, flood, and earthquake since standard policies don’t automatically include them. Home policies also typically don’t cover you for things like general wear and tear, mould, and damage from pests, to name just a few. Be sure to review your insurance policy so you’re aware of any exclusions or uncovered items and events.
Generally, your home insurance will cover you and your family members living with you. If something changes – like you rent out a room or part of your home to someone else – you’re responsible for notifying your insurance company.
It depends, and how your premium is calculated can get rather complicated. Your home insurance price – known as your premium – depends on a variety of factors, and is determined on a case-by-case basis. This means you likely won’t be paying the same premium as your next-door neighbour, even though they live right beside you. Why? Well, here are just a few things that could impact how much you pay:
The type of home you live in. Insurance providers will consider the type of dwelling, which could be a single-family home, semi-detached, rental property, condo or seasonal home.
Previous claims. Your personal history of claims affects your premium – the more claims you have, the more you’ll pay.
Characteristics of your home. Companies will look at things like age and size of your home, and the materials used to build it. Your insurer will also consider things like how your home is heated.
Geography. Where you live will impact how much you pay – areas prone to break-ins, for example, may have higher home insurance premiums since insurance providers will be paying out more theft claims.
Home upgrades. If you’ve improved your home in any way, you might be paying a little more since upgrades cost more to replace. But there are also changes you can make to your home that can actually help to reduce how much you pay, like updating your electrical system.
Additional alarm systems. Here’s one example of how you might be able to save on your insurance. Having additional security pays off, since some insurance companies provide discounts if you install an alarm system to protect against theft.
- The deductible you choose. A deductible is the amount you pay out of pocket before your insurance kicks in to pay the rest. Generally, if you choose a higher deductible, you’ll pay less premium (but be prepared to pay more in the event of a claim).
These are just a few factors that are used to determine insurance premiums. Keep in mind that every provider sets their own rates and has their own set of rules when it comes to home insurance. If you find you’re paying too much with one company, try shopping around – you might just find a better deal somewhere else. Some insurers allow you to check how much it might cost to cancel a current policy, if you’re currently insured.
We know insurance is the last thing on a person’s mind when someone close passes away. To make life easier for your loved ones during this difficult time, include specific plans for your insurance in your will. Insurance companies have different processes for cancelling an insurance policy when a policyholder dies. Talk to your insurance provider to find out what their process is and how to deal with outstanding payments (if there are any). Prepare any documentation in advance (if you can), and have a conversation with the person you’ve chosen as executor to make sure they know what to do when the time comes.
Home insurance differs from one company to the next, so it’s smart to shop around and ask questions if there’s anything you don’t understand. At the end of the day, you want to make sure the policy you choose fits your needs exactly.
Find out how easy getting home insurance can be! Get a quote with Sonnet today.