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You’ve just signed the paperwork and you’re this close to finally becoming a homeowner. It hasn’t gotten any easier out there to buy property in Canada, and this is a major accomplishment. But before you move in, there’s one important question you need to answer: how are you going to insure it?
Why Do You Need Home Insurance?
Home insurance covers these main expenses:
- Structural damage to your home;
- Loss of personal belongings;
- Expenses related to the loss of use of your home;
- Liability if someone were to be injured on your property.
Home insurance policies will only cover these expenses if they are incurred due to certain kinds of perils. Commonly covered perils include fire, water damage, extreme weather (like hail or wind), and theft. However, you may need additional coverage for flooding, earthquakes, mass evacuation, or other types of loss that are rarer but tend to impact entire communities.
What Do You Need to Know About Making a Home Insurance Claim?
Before you sign an insurance contract, you should know what happens when you make a fire insurance claim in Canada.
It’s not easy dealing with home insurance claims. The insurer will assign a loss adjuster to the case. They will survey the damage and bring in experts to determine the costs of repairing everything. They will compare this information with your policy and coverage to recommend how much the insurance company should pay you.
You will have to create a Schedule of Loss, a complete list of lost belongings, and submit it to the loss adjuster.
It will be up to you to review the adjuster’s estimates and disagree if you feel like you are owed more.
Do You Have Enough Insurance?
Insurance premiums aren’t cheap, and they’ve been rising pretty consistently across the country over the past ten years. You don’t want to have to pay for more insurance than you really need, but even worse would be getting too little insurance.
This is where things can become complicated. Your insurance is not based on the market value of your home. It’s based on the replacement cost of the structure of the building and your personal belongings. So, you may have bought your home for $800,000, but it would only cost about $400,000 to rebuild (based on the average construction cost per square foot of a 1,600 square foot townhome).
Insurance companies will often use the 80% rule, in which they will only cover the costs of a loss if you are insured for at least 80% of the home’s replacement value.
Even more complicated, your mortgage lender may require you to insure your home up to a certain percentage of your mortgage. Check with them about their expectations for your insurance policy.
Knowing how much insurance you need will help protect you from financial hardship in case you ever need to make a claim.
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