A Short Guide to Homeowner's Insurance

Posted by Justin Havre on Tuesday, June 4th, 2019 at 12:15pm.

How to Choose the Right Homeowner's Insurance CoverageHomeowner's insurance can unfortunately be viewed as an afterthought after the tumultuous process of buying a home. After filling out form after form just to purchase the property, few buyers want to go through the complicated paperwork of their policy. However, home insurance is an extremely handy resource for homeowners to have, and a buyer should understand what their coverage is before they decide on a particular premium.

Preparing to Buy Homeowners Insurance

You’ve finally bought that dream home you’ve always wanted. The possession date is set and the movers are lined up to get the family moved into your new home. Before you do, there is one very important task you have to perform beforehand. What is that, you ask? The answer is the purchasing of homeowner’s insurance. A house is an expensive investment and it is vital that you do everything possible to protect that investment against an unexpected catastrophe such as a fire or vandalism.

Not only do you want to protect the house, you’ve also spent a lot of cash on your personal things such as furniture, clothing, art work, books, tools and household goods, just to name a few. If you took stock of everything you own and figured out how much it would cost to replace all these precious items, the total will range in the tens of thousands of dollars to replace. Get them insured.

What does Homeowner’s Insurance Cover?

There are 3 main areas of coverage for homeowner’s coverage.

The Home Itself

The home needs to be covered not just with the idea of covering repairs, but for its total replacement should it be completely destroyed. You must consider not only your investment or down payment, but also remember that the mortgage still has to be paid. The recommended amount of coverage you should have should be equivalent to the market or appraised value of the home. It is also vital that you re-visit the value of your home every other year at least become homes generally appreciate in value.

Don’t forget to consider house/hotel rental coverage either. If you are forced to vacate your home while it’s being replaced or repaired you will need somewhere to live.

Your Possessions

When trying to figure what your possessions are worth, don’t be cavalier and pick a vague number out of the air. Include everything from your toothpaste to your most expensive item. Specialty items like valuable paintings, collectibles, and jewellery may need to be appraised separately and covered by additional riders. Most insurance companies strongly suggest you take pictures of all you possessions, and keep an up to date list of what you own to avoid disputes with the insurance company if you make a claim.  

Liability

All homeowner policies cover guests on your property for liability if they injure themselves such as a slip and fall on icy steps. Don’t scrimp on this portion of the policy because if the amount awarded the third party exceeds your coverage you will be responsible for the rest of it.

Types of Homeowners Insurance Coverage

The main types of coverage include the following options:

  • No-frills: This coverage is the bare minimum of coverage for homes, and it's one of the least expensive a buyer can choose.. It's so basic that not all properties are even eligible to buy it. Buyers will need to consult with their real estate agent or an insurance expert to verify if their home qualifies.
  • Standard: A standard policy will list exactly what events and parts of the property are covered. Should something happen that falls outside the parameters of the policy, homeowners will be held fully responsible for all repairs.
  • Comprehensive: A comprehensive policy will name exclusions rather than inclusions. It's the best possible coverage a homeowner can buy (and often the easiest to understand).
  • Broad: A broad policy is a hybrid of a standard and comprehensive policy. It will provide full coverage to the property and the physical structure, and limit the coverage of the home's contents. This policy is complicated, so buyers should ask questions before they sign on the dotted line.

Coverage Options for Home Insurance

Home owner policies generally have 3 types of coverage options. These options include:

  • Actual Cash Value – This type of coverage means the cost of replacement of the home or possessions less depreciation, and not what you paid for it. Most items depreciate at a rough rate of 10% per year. You can be out of a lot of money with this type of coverage.
  • Cost – This means you would be reimbursed for what you originally paid for the item. For example, if you bought an item 4 years and spent $300 then that’s what you would receive.
  • Guaranteed/Extended Replacement Cost – This is the most comprehensive form of coverage. It not considers the replacement cost of what you paid several years ago but the inflationary rate of what it would to replace at today’s value. However, there is usually a ceiling limit of between 20-25% on the amount of inflation coverage provided.

How a Premium Is Calculated

A homeowner's premium is determined by the amount of relative risk in any given area. From the size of the home to the age of the property, the insurance company will calculate the odds of a homeowner filing an expensive claim. Homeowners should be upfront when it comes to giving the specifics of their new home.

And while it may be tempting to massage the truth to lower the monthly charges, doing so can result in a lack of coverage if the insurance company does a thorough investigation before settling a claim. For instance, if a buyer chooses to rent out their home, they'll need to pay for that privilege with a higher insurance premium. (This is because an insurance company can't verify who will be entering the home.)

Predictable and Unexpected Events

A predictable event is one that a home buyer can anticipate and fix beforehand, which is why it's generally not covered by home insurance companies. For example, if giant icicles fall from the home and injure a delivery man, the insurance company would argue the homeowner should have taken care of the ice formations prior to the accident. This definition can be complex because not everyone has the same definition of predictable. However, homeowners are encourage to err on the side of caution when it comes to preventative maintenance.

An unexpected event, like a theft or a fire, is generally covered because the homeowner would have had no prior knowledge of the event occurring. However, this does not hold true for all unexpected events. Natural disasters like flooding and earthquakes may require additional coverage, so home buyers will need to clarify the terms before deciding on a policy.

When it comes to choosing an insurance company, Strathmore home buyers are highly encouraged to do their research rather than choosing based on price alone. From reviews to prices, this step can help buyers choose the right partners.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

How to Get More Affordable Home Insurance

There are a variety of different ways to get a lower price on your home insurance. Don't assume that you'll have to pay full price for insurance. There are some things you can do that will give you a break on your insurance premiums.

Use The Same Provider

If you don't have all of your insurance with the same provider, you're probably missing out on savings. Insurance companies are desperate for your business and will reward you for bundling together your policies. In some cases you can save as much as 20% to 30% by having one company handle both your house and your auto insurance. Sometimes you can even have your life insurance bundled together as well for extra savings.

Get A Quality Alarm System

Cut down your insurance premiums by installing a quality burglar alarm system. If your alarm is connected to a central alert station you may find that your insurance premiums will decrease by as much as 10%. Insurance companies offer this discount since they know that your home will have 24/7 monitoring, which reduces the risk of having to make a payout. 

Find out first from your insurance company how much you will be saving before installing any type of alarm system. There will be certain restrictions on the types of alarms that will fit into the category for discounted savings. You'll want to be sure that the alarm you put in is actually going to save you money on your home insurance.

Shop Around

Shop around and then shop around even more. You'll be amazed at the different insurance prices being quoted from one company to the next. You should also find out how much it would cost if you were to raise the deductible. In some cases you can save 30% or more by substantially raising the deductible . Sit down and have a pen and paper ready to record the various quotes you receive from  companies while taking into account the differences in price quotes based on a higher deductible.

You can save money on your home insurance by shopping around, installing an alarm system and by bundling together your insurance policies. While it can take a little effort to put all together, you may see significant cost savings as a result.

Justin Havre is the top producing REALTOR® with RE/MAX First, Canada's very first RE/MAX brokerage. Calgary real estate is his passion; Justin specializes in Southwest & Northwest Calgary homes for sale. He can be reached at 403.217.0003 or contacted through this site.

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