You’re just about to close on the sale of your new home, and excited for a new chapter of your life. You realize you need to get homeowners insurance and have just started searching online to find an insurance quote for your soon-to-be home.
It often involves a lot of confusion and uncertainty when it comes to insurance. Many Canadians understand the importance of insurance, but 52% of them find it difficult to understand their policy. Yet it’s essential financial protection you should have for your biggest asset—your house—and an important topic you should understand as a homeowner.
So, let’s talk about how much you know and don’t know. Do you know what homeowners insurance covers? And, what types of homeowners insurance coverage exist? Maybe you have heard from your family, realtors or mortgage brokers saying the importance of buying homeowners insurance. But why?
If you can’t answer some or none of the questions I’ve asked, this article will help you understand all the important things about homeowners insurance so that you can make an informed buying decision when you’re ready.
Keep reading to learn more, or use the chapter links below to jump ahead to the section of interest, and don’t forget to bookmark this guide for later.
What is homeowners insurance?
Before I get into the details of homeowners insurance, let’s go back to basics: What is homeowners insurance?
Homeowners insurance is a type of residential insurance that covers losses and damages to your residence, along with furnishings and other assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.
Whether you’re shopping for your homeowners insurance for the first time or switching your homeowners insurance policy, it’s important to keep your homeowners insurance and cover your home and needs for a variety of reasons—I dive into these next.
The Importance of homeowners insurance
Your homeowners insurance is arguably one of your most important things to buy for your home. Homeowners insurance protects you from losing a significant amount of money should something awful happen to your home or belongings and they need to be repaired or replaced. Without homeowners insurance, you’d have to pay for these costs yourself.
Homeowners insurance helps you to not suffer from any financial loss associated with damage or loss of the property you own. By having solid insurance, you’re well prepared to financially handle such a loss, without burdening others to help cover loss and damage.
Homeowners insurance protects you against lawsuits. It’s likely someone could get hurt on your property. In this case, they could potentially sue you. The best way to prepare for this is by having insurance. homeowners insurance will protect you against lawsuits by paying for medical bills and paying attorney fees. It does not only help you financially but save you a lot of stress.
Homeowners insurance gives you simply peace of mind and security. Insurance provides support in times of real need and is one less thing you will have to worry about in the event of a disaster.
Our regional manager, Harjit Shihota, talks about the importance of homeowners insurance in the following video.
When it comes to protecting your biggest asset, it’s best to ensure you have the homeowners insurance coverage you need. Without having the proper insurance coverage and understanding what your insurance needs truly are, your home is not properly insured and you may not have enough insurance to replace it or your contents in the event of serious damage.
What does homeowners insurance cover?
Now let’s review what homeowners insurance covers. Homeowners' insurance policies vary from one insurer to another. However, here’s a rundown of common types of homeowners insurance coverage that’s worth noting:
- Dwelling – Protects against damage to the structure of your home including floors, walls, built-in appliances and ceilings, as well as any attached structures.
- Personal property – Reimburses you if your personal contents (furniture, electronics, kitchenware, etc) are damaged or stolen.
- Additional living expenses – Covers costs like temporary accommodations and eating out if your home becomes unlivable.
- Personal liability – Reimburses you if you’re sued for accidental injury or property damage to others
- Other structure – Protects against damage to detached structures like your garage, pool, fence, or mailbox.
- Medical payments – Covers the costs of minor injuries if someone who isn’t a resident of your home is injured on your property.
According to Cathie Spencer, branch manager of InsureBC Arbutus office, she gave a great example of how her client’s homeowners insurance coverage protected them in the event of a disaster. Her client’s home caught fire causing significant damage to their home. As it was going to take quite some time to rebuild the home, their insurance company paid the rent on a furnished home for them to live in during the construction period.
They also provided the funds to buy new clothing and personal items as everything was either burned up or damaged by water and smoke. They were in the rental home for 18 months and the rent was fully paid. When they finally moved back in, their furnishings and personal items were all replaced by the insurance company.
What does it not cover?
Generally speaking, your homeowners insurance will not cover any bird or rodent damage, rust, rot, mold and general wear and tear.
Some events are typically excluded from policies, such as natural disasters and acts of war. If you live in an area that’s prone to earthquakes or floods, you’ll want an extra policy for earthquake insurance or flood insurance. If you live in British Columbia, Earthquake coverage is one of the most important coverages to add to your homeowners insurance policy. According to Insurance Business Canada, British Columbia has the highest earthquake risk in Canada. The province is prone to seismic activity because of its geographical location.
There’s also sewer and drain backup coverage you can add on, and even identity theft coverage that reimburses you for expenses related to being a victim of identity theft.
How to find the homeowners insurance policy?
- Step 1. Understand your homeowners insurance needs:
You need to familiarize yourself with the basics of homeowners insurance as well as a general idea of how much coverage you need to ensure your home and personal possessions are fully covered.
Everyone has unique needs and because of that, everyone’s coverages may be different by their houses, the coverage details, and whether they have added their optional add-ons or not.
- Step 2. Decide how you’ll shop for homeowners insurance:
There are different methods to buy homeowners insurance. One of the best ways to shop for any type of insurance is to go through an independent broker so that you can get unbiased advice about which policy is best for you.
Our licensed independent brokers here at InsureBC will help you with the expertise, and coverage recommendations and let you buy a policy directly from our website or through one of our 90+ offices for a policy that’s effective and affordable for you and your home.
- Step 3. Collect the information you’ll need when you shop:
The next step to finding homeowners insurance is by collecting the information about the home you’d like to insure. Your policy is built specifically for your home, so it’s important to know the features of your home to get the most accurate coverage. Also, you’ll need to provide details about your home and living situation in order to get a quote. Re-shopping your policy? Have your current declarations page handy to make the process smoother.
Here’s a rundown of the information you may need to provide to your agent or broker or on the online insurance website in order to get accurate quote estimates when you apply.
Information about home
- Year the home was built – You’ll be asked what year your home was originally built.
- Construction details – Most insurance companies will ask for construction details, like building materials used and what type of roof you have.
- Renovations or updates – If you have made upgrades to your home since you bought it, such as replacing the roof, installing a central air system, finishing your basement, remodelling a kitchen or other updates that increase the value of your home, this information needs to be provided to reflect the current value and replacement cost of your home.
- Mortgage lender information – The legal name of the bank or financing company in which the mortgage was issued.
Information about you
- Date of birth – Your age is a factor when calculating your premium.
- Claim history – Your claim history has a huge impact on your insurance premium. The more claims you’ve filed, the more you’ll pay for insurance.
- Credit score – Your credit score can be another big factor when it comes to your insurance rate. Typically, the lower your credit score, the higher your premium.
- Liability questions – Depending on insurance carriers, some carriers may want to know if you have any pets, trampolines, tree forts, or pools.
If you want to get a quote online, our online homeowners insurance can fetch information like: homes square footage, year built, heating type, architectural type, roof type and age, electrical specs and distance from fire departments.
- Step 4. Shop around and select a policy:
Once you have a clear understanding of your coverage and have information about home handy, it’s time to shop. Let’s not forget that shopping for homeowners insurance deserves some attention, too. You want to get the best rates possible and coverage you need, after all!
Make sure to analyze a variety of policy options so you’re able to do a proper comparison. Choosing the cheapest policy without checking the included coverages is one of the mistakes a lot of homeowners make.
You also need to find a good insurance carrier that will deliver the quality service you would expect if you needed assistance in filing a claim. Probably this is the information you cannot get easily on the internet. However, you can ask your insurance agent or advisor about these to make sure that the coverage you’re purchasing is backed by a carrier that has a good reputation.
- Step 5. Cover additional assets:
Options, add-ons, and separate coverages will increase the cost of a standard policy. But they could save you a lot of money in the long run.
InsureBC’s online homeowner's insurance allows you to select optional add-ons to personalize and customize your homeowner's insurance coverage.
Here are examples of additional add-ons like InsureBC offer to consider when customizing your homeowners insurance coverage:
- Sewer backup: Covers losses from the backing up of sewage into your home or damage caused by water escaping from appliances or a pipe that bursts. This is especially important for finished basements as sewage claims can cost several thousands of dollars to clean up and repair.
- Water protection: Along with sewer backup coverage, water protection covers you for water damage in your home. An increase in severe weather events in Canada has resulted in more flooded basements and water damage.
- Earthquake: Earthquake insurance covers all your contents, appliances, and of course your property in case of a claim. You will have to pay the Earthquake deductible, but if you lose everything due to an earthquake this coverage is great to have.
- Service line: Service line coverage covers the costs associated with repairs to underground pipes and wiring from the street to your house when damage occurs on your property. As a homeowner, you’re responsible for the service lines from your home to the public watermain. Those service lines can be damaged by tree roots, freezing, excavation and other causes. They’re not typically covered under a basic homeowners insurance policy and can be costly to repair.
Keep in mind as you shop around some companies may include these extras in their basic coverage while others may charge you an added premium. Understanding this will help you approximate apples-to-apples comparisons.
- Step 6. Choose a plan and buy:
You’ve shopped around and figured out how much insurance coverage, deductible, and additional coverage you need, now it’s time to choose a plan and buy your policy.
Make sure you ask a lot of questions to your insurance agent or broker so that you have a clear understanding of your insurance policy details and have peace of mind that you have the right coverage for your home.
How to lower your homeowners insurance premium?
Finding insurance for your most important asset is not easy. And when you finally find a reputable and knowledgeable broker to help you, you may be surprised at the cost associated with your insurance policy.
There are many different factors that go into calculating your homeowners insurance premium. Insurance companies have become data-driven institutions that know exactly what loss history is associated with each individual postal code within BC. As a result of all the data they collect, these insurers have gotten even more accurate in calculating the odds of further losses in the same areas, and therefore attaching the applicable premium to it.
There are a number of other factors that determine your homeowners insurance premium and some are actually within your control and will affect the rate you pay each year. Let’s have a closer look at factors that could help you lower your annual homeowners insurance premium:
- Your Age: Many insurance companies offer a ‘mature aged discount’ as part of their insurance application. Depending on the company, this could provide savings of 10% to those who are 65 years of age, or older.
- Your Deductible: The overall policy deductible you select has an inverse relationship with your premium. If you select a higher than average deductible (ie. $5,000), you will notice a lower annual premium but do keep in mind that should you experience a claim, you will be responsible for the higher deductible amount.
- Credit Score: In recent years, almost all insurance companies have started using Credit Score as an additional factor to help calculate premiums. There appears to be a strong correlation between one’s credit score and the likelihood of filing a claim. Depending on the insurer, those individuals who are willing to consent to a soft credit check may save up to 15% on their annual premium, should they have a solid credit score. Not to worry, however, insurance companies will never surcharge your premium if you have a lower credit score.
- Claims History: Every insurance company likes to have clients who do not file claims, and in order to increase the number of these clients, they will often offer a “Claims-Free Discount” to attract them to buy their policy. If you happen to be someone who has had property insurance for years and years, without ever filing a claim, nearly every insurance company will be offering you a discount (5-15%) to reflect that, and attract you to be their customer.
- Mortgage:Most people who own property in BC carry a mortgage. But, for those who are fortunate enough to be mortgage-free, many insurance companies will offer a mortgage-free discount in the range of 10% off the base premium. For decades, insurers have determined that individuals without a mortgage have a greater likelihood to be financially responsible, which they believe translates into more responsible homeownership.
- Age Of the House: If you have just purchased a brand new home or renovated an existing one entirely, you may qualify for a ‘new home discount’ of up to 10% off base premium from a number of insurers. Newer homes tend to experience far fewer claims than older homes, so insurance companies will offer incentives to clients with newly built or renovated homes.
- Alarms, Detectors & Security Systems: A secure home is an attractive home for insurance companies. If your residence features (active) smoke detectors, a fire alarm and/or even a monitored security system, make sure you let us know as many insurance companies will offer a 5-10% discount off your base premium as a result.
- Location, Location, Location: Yes, the location of your home will affect the premium the insurance company charges. With the increased focus on the use of data, insurers know exactly which postal codes are prone to burglaries (or other crimes), which postal codes are subject to increased odds of flooding or even earthquake damage. Before you put an offer on your next home, you may want to reach out to us to see if your property is insurable and how insurance companies rate your likely new home.
- Coverage Options: Another way to lower the annual premium of your homeowners policy is to remove coverage options that you don’t believe you need. For example, if you live in a part of BC that is far removed from an Earthquake faultline, you can select to remove Earthquake coverage from your policy. A similar decision can be made for overland water coverage if people feel that their home is really not at risk to be affected by this peril. Before removing any coverages from your policy to save yourself a few bucks, make sure you talk to one of our insurance advisors to make sure you’re not putting yourself at risk.
The pros and cons of homeowners insurance
Purchasing insurance is rather unique. You pay for it annually, only receive a piece of paper in return and hope never to have to use the product you just bought. There are very few other products that operate in a similar manner.
That begs the question—is homeowners insurance worth it and what exactly are its pros and cons?
The pros of homeowners insurance:
1. Peace of Mind:
Arguably the single most important benefit of an insurance policy is that it gives you peace of mind that your home is protected should it (or you) experience a loss. This could be anything from a fire to burglary and many things in between. Knowing your home and your possessions are protected by a solid insurance policy should put your mind at ease. Trying to rebuild your entire home, and replace all your possessions following a fire or other disaster without insurance is unthinkable.
2. Property Protection
Closely associated with peace of mind is the mere protection you receive with an active homeowners policy in place. Your most valued possession will be protected from the following perils:
- Fire or lightning
- Windstorm or hail
- Vandalism or malicious mischief
- Riot or civil commotion
- And more
3. Liability Protection
If you or a family member are found legally responsible for accidentally damaging someone else’s property or injuring someone, the liability coverage portion of your policy may help pay for related repair costs and legal fees. This would be in addition to helping with medical bills, should there be any. The Liability portion of an insurance policy can save you hundreds of thousands in medical, legal and repair costs.
4. Minimal Financial Burden
A standard homeowners policy includes a $1,000 or $2,500 deductible. This amount can be categorized as the payment the homeowner is responsible for should you experience a loss to the property or liability. If the claim is covered by the policy in place, the insurance company will then take care of the rest of the payment to get you (your property) back into the same financial position as they were in immediately before the loss. This is the principle of indemnity, which is at the core of every insurance policy.
5. Mortgage Financing
Many financial institutions no longer offer mortgages for properties that do not carry an active insurance policy. Without a homeowners policy in place, the banks would not be protected in the event the property they have secured a loan for experiences a major claim.
In contrast, some of the drawbacks of a home and contents insurance policy are:
1. It does not cover everything
Even though a typical homeowners premium may be a few thousand dollars per year, there is a false assumption among insured that their policy should cover ‘everything’. Unfortunately, there is no policy that exists that covers you for absolutely everything that could happen to you or your home. Furthermore, you may need to buy optional additional coverage or exclusive coverage for some high-value items, or risk being underinsured.
Yes, having homeowners insurance does add an additional payment to your monthly (or annual) finances. The payment could be quite significant, depending on your home and the different coverage options you select. If you choose not to purchase insurance, but rather to ‘self-insure’ the home, your belongings and your liability exposure, you would save yourself a monthly bill.
Homeowners insurance terms to know
Here are some homeowners insurance jargons you should know. You will see or hear a lot of terms below when you shop for your homeowners insurance. These will get you up to speed on language that will help you better understand your coverages and how they help you protect what matters the most.
- Actual Cash Value (ACV): Actual cash value refers to the current value of property measured in cash. Insurance companies arrive at the ACV amount by taking the replacement cost and deducting depreciation that’s brought about by wear and tear and age.
- Additional Living Expense: When you have to move out of your home due to an approved claim, Additional Living Expense pays for your rent or hotel.
- Adjuster: After you submit a claim, an insurance adjuster or claims adjuster is assigned to your case and is responsible for assessing the damage and determining its true value.
- Claim: When a policyholder requests compensation for a covered event or loss. If the damage is less than or approximately the same amount as your deductible it may not be worthwhile to file a claim.
- Deductible: The first amount all insureds would have to pay after a loss – the amount over this limit would be covered by the insurance company. In the event of a claim, this amount comes off of the total payable.
- Depreciation: An item’s loss of value. For example, when you purchase a vehicle it can depreciate by 10-25% annually.
- Dwelling Policy: A detached home policy.
- Dwelling Limit: The rebuilding value of a home in current dollars – this is the amount that determines the base rate of insurance.
- Endorsement: A mid-term change made to the policy. This could be anything from an address change to adding an engagement ring to adding an additional insured to the policy.
- Exclusion: An item not covered on the policy.
- Independent Agent: An independent agent is a licensed person who sells insurance policies for multiple companies.
- Reconstruction Cost: The cost to rebuild a home after a loss.
- Fraud Insurance: Many homeowners insurance policies come with Identity Theft insurance which could cover lost income or administrative and legal fees you may incur.
- Earthquake Insurance: Covers you in the event of an earthquake. This portion will have a different deductible than the rest of your policy. If you do not have an earthquake on your policy, alternate coverages would not apply if it is the result of an earthquake. For example, if your home flooded but the underlying cause of the flood was an earthquake, this would not be covered unless you purchased earthquake insurance.
- Guaranteed Replacement Cost: When it is guaranteed this means the policy will rebuild your home even if the damage is more than your replacement cost limit.
- Named Insured: The people named on the policy. If you have a mortgage, this should match your mortgage documents.
Ready, Set, Action!
I’m guessing you’re feeling a little bit overwhelmed right now. Don’t worry, you’re not alone. Understanding homeowners insurance and the details of it can seem daunting at first, but once you understand the concept of it, you’ll find the coverage that meets your unique needs.
InsureBC’s licensed experts can help you from start to finish so you can feel confident and comfortable with your homeowners insurance decisions.