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What is homeowners insurance?

Homeowners insurance helps to cover losses and damages to your home, detached structures on the property, and the contents within from furnishings to valuables. Homeowners insurance also provides liability coverage against personal injuries or accidents inside your house or on your property.

Every homeowner's insurance policy has a liability limit that you define, premiums to pay either monthly or annually, and deductibles to pay should you need to make a claim. 

Your home may be your largest investment, so it's worth protecting both it and yourself. Here's what you need to know about homeowners insurance. 

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Homeowners insurance types

The Insurance Bureau of Canada (IBC) outlines four different types of home insurance coverage  available across Canada:

Comprehensive

The most popular & inclusive policy covering the building and its contents for all risks, except those specifically excluded including uninsurable perils (e.g. war, terrorism, vacancy over 30 days, damage by birds, vermin, rodents, and freezing inside the home during the heating season).  There are optional add-ons you can purchase such as earthquake insurance and flood insurance for extra protection. 

Broad 

If a comprehensive is too expensive, the next level is a broad insurance policy. Broad is comprehensive on the building and named perils on the contents. Named perils means unless you specify a risk, there is no coverage (e.g. if you don't name lighting, and a bolt causes a surge to your electrical damaging some appliances, this insurance won't cover you.)

Basic

Basic home insurance can save you money, but you'll be left to carry some financial risks. You must specify each peril you'd like insurance for, for instance: Aircraft or vehicle impact, Electrical current, Explosion, Falling objects (excluding objects propelled by a snow slide or earth movement), Fire, Lightning, Smoke (released suddenly from malfunctioning cooking or heating devices, but not from fireplaces), Theft, Wind & Hail, Water Damage, Vandalism, and many more. 

No frills

If your house can't be insured because of its current condition. It's only available from some providers with the expectation that you'll work on property improvements. 

Know that, insurance providers tend to have their own definitions of these terms (e.g. gold, silver bronze), so whoever you decide to go with, make sure to read the fine print of your policy to find out what is and is not covered.

How are home insurance premiums calculated?

Similar to how a home inspector examines the structure of your home, a home insurance provider will assess the interior and exterior features, figure out the probability of something going wrong and then give you a quote. The more risks there are with your home, or the more expensive potential repairs would be, the more your premiums will cost you.

When determining your premiums, home insurance providers will look at the following:

  • Construction of home (brick vs. cement vs. wood)
  • Location of your home
  • Distance to the closest fire hydrant
  • Value of home and belongings
  • Any special uses (home office, rental unit, etc.)
  • Type of electricity
  • Type of pipes
  • Source of heating
  • Anything else that might affect your premium, such as the age of the home, the home security system (if there is one), a pool, etc.

How much should I be paying for homeowners insurance?

The average cost in Ontario is $1250 per year. In BC, the average is $840. The best way to know if you're getting the best value is to compare quotes to find the best price!

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Do I have to buy home insurance?

It depends. If you have a mortgage, or have financed any portion of your home, your lender will require basic home insurance. If you own your home free and clear, it’s up to you to decide whether or not you should have any coverage on your home (but we always recommend it).

There are a few things to consider, as well, before purchasing a new home. A home in poor living conditions could result in an increase in premiums, because of work that may need to be done. Homes in areas with unpredictable weather or in remote areas may also be subject to higher rates. If you live in a neighbourhood with a lot of crime, you may need to install deadbolts or add a security system in order to lower your premiums.

Essentially anything that might leave your home vulnerable to damage is likely to increase your rates, so be aware of these possibilities when you’re house shopping.

Why you should have home insurance

Homeowners insurance is a small price to pay when comparing to the huge costs of a house burning down. Better safe than sorry.

Where can I purchase home insurance?

You can buy home insurance online, in person or over the phone through any number of providers, including insurance brokers, agents or a company. If you’re unsure, you can always ask friends and family for recommendations.

Whichever provider you go with should take the time to sit down with you and explain the policy options and premium rates. Don’t be shy during this meeting. Read all the fine print and ask any questions you might have. Make a list beforehand so you get all your questions answered. 

And remember to shop around before committing, to make sure you’re getting the best deal. That being said – don’t lie to a provider to get a better rate. It will come back to bite you should you ever need to make a claim. Your claim could be denied or your policy could be cancelled. 

How do I cancel home insurance?

When cancelling home insurance, make sure to give as much notice as possible and provide a written letter requesting the cancellation. If you have prepaid your premium for the year, you may be able to get a prorated amount refunded, but check your policy.

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Homeowners insurance vs. mortgage insurance

Homeowner's insurance protects your house, detached structures, contents, and your liability should someone injure themselves on your property. Mortgage insurance is a type of life insurance product you can buy from your mortgage provider. With a mortgage life insurance policy, if you die, the bank will pay off the rest of your mortgage.  However, life insurance is a far better product than mortgage life insurance. 

 

mortgage-insurance-vs-life-insurance

FAQs

Frequently asked questions about homeowners insurance

Are tools covered under homeowners insurance?

Are vehicles covered under homeowners insurance?

Can an insurance company cancel your homeowners policy?

Does homeowners insurance cover basement leaks?

Author Bio

Matt Hands, Business Director of Insurance

Matt started his professional career at CARPROOF where he honed his marketing and analytical skills for over 3 years. Matt then took his wealth of experience to Ratehub.ca’s Toronto offices, working with insurance providers, agents, and brokers to grow and expand the Insurance business unit. He is a thought leader in the community and a valuable insurance resource to respected publications like the Globe & Mail, Toronto Star, Huffington Post, Yahoo News, and 680 news radio in Toronto.

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