We're all making mistakes...
The biggest mistake one could make when buying home insurance is not having enough cover to replace the structure if your home was completely destroyed.
We're going to talk about some of the important factors you need to know when buying home insurance and making sure that's your current policy has the proper coverage and features to protect your family in the event of a claim.
1. How much should my home be covered for?
This may seem easy to an insurance professional, but people who don't do insurance for a living, simply have very little idea of how much it would cost to rebuild their home.
The rates that a construction professional would tell you will likely be 50% less than what an insurance professional would tell you. Insurance is an industry that has a lot of mitigating factors that drive the cost of your insurance.
Insurance companies would look at the worst case scenario to determine your premium as well as the construction cost to rebuild. What is the worst case scenario living in a cold climate like Canada? They may assume that's your home burns down in the middle of January when it's -20°C outside.
Naturally, to put a crew together and to rebuild a home during such time will cost more than in the middle of August when it is 25°C or 30°C.
2. How do you calculate the insurance coverage?
A simple method to figure out how much coverage you should have for your home insurance is as follows.
Know the square footage of your property and multiply it by the average construction cost that the insurance industry may use for home insurance.
For example, a 2000 sq. ft. home may have an insurance construction cost up $275 per sq. ft. This results in $550,000 would be the replacement cost of this property and that is what the property would be insured for.
3. What else is covered besides the building?
Next, you have to take a look at any private structures that are on the property.
Have you put a fence around your yard? This could easily get damaged by the wind or someone losing control of their vehicle and driving it into your property.What about the tool shed that stores all your lawn and garden equipment? How big is that deck that you've constructed? The thousands of dollars you spent on interlocking as well? Did you forget your pool?
You need to put a dollar figure on all these items, so that you have enough coverage to replace them in the event of a claim.
4. We have covered the outside. Now, what about your massive collection of stuff?
One of the most difficult questions we ask consumers as brokers is if you came home and everything was burnt down or stolen, how much money would you need to replace everything?
Usually, you get a blank stare because they have no idea about how much stuff they have collected over the years! Most people grossly underestimate the amount of things they have collected and the cost to replace those items.
The clothes, the shoes, the suits, the dresses, the stereo equipment, the jewelry... All of these things are usually collected over time, and we don't check them off and put a dollar amount on it, so it's very easy to lose track of the total amount that has been spent over the years!
Luckily, insurance companies know this, so they give you a generous amount, usually 70% of the dwelling coverage, sticking with our $550,000.
Most insurance companies would offer you contents coverage up around $385,000 as this is 70% of the dwelling coverage of $550,000.
5. But I don't always stay home! What about when I travel?
There's a coverage for that too. Most insurance companies will cover 10% of the content coverage, which in this case would be $30,500 as 10% of the $385,000. This coverage is available while you're travelling anywhere in the world.
An interesting note, when something is stolen from your vehicle, such as a laptop or a leather jacket, this is the coverage that responds not your car insurance.
6. What if I can't live in the home because of a fire?
Good question! How long does it take to rebuild a house? I think we can all guess that it may take several months. So where do you stay during that time? We usually have relatives, but after a few days most of us would wear out our welcome.
So there was a provision called additional living expenses.This will allow you to stay in a hotel and help pay for the extra cost.
A key note here is the word additional. What this means is if you normally spend $2,000 per month as your living expenses, however, now, that you're in a hotel your expenses go up to $4,000 per month, the insurance company will reimburse you that extra $2,000.
7. How is that coverage calculated?
The percentage is 20% of your dwelling coverage, so sticking with the $550,000 would work out to $110,000 as additional living expenses.
8. How much liability coverage should I have?
Liability may be one of the most important coverage you get with your homeowners policy. What happens if a fire that started in your home spreads to your neighbor and burns his house?Naturally, he's going to want someone to pay for it.
Most brokers in Canada would include $1000,000 in liability coverage on your home insurance policy. This will also protect you if someone comes on your property, slips, falls, and now, suddenly, says they are unable to walk anymore.
Your liability coverage will pay for the lawyer and have the lawyer argue the case. And should the case be lost, the insurance company will settle the claim up to the policy limit of $1000,000.
9. Should I have more than 1 million and liability coverage?
To answer that I would always say your broker job is to protect you in the best way in the event that you should have a claim. So if you live in a Million Neighborhood, you will likely need to have liability coverage that best reflects that neighborhood by having liability coverage of $2,000,000 or more.
10. I've heard water is a problem. How does that work?
Water damage claims have eclipsed fire claims many years ago. They're the number one cause of damage in homes condos and apartments. Another essential coverage that should be included in your home insurance is sewer backup coverage.
As you know, most homes are connected to the sewage drainage system and just like the toilet if it doesn't have a free flow, it can begin to back up in the basements in a neighborhood that has somehow become clogged. Many basements now being finished as entertainment rooms as well as basement apartments. The investments in basements by the average consumer have reached a very high cost to replace and the repairs are reflected in the claim amounts.
This is an optional coverage, but it should be mandatory on your policy unless your insurance company has a restriction in that area.
In conclusion...
Home insurance can be complicated, and it is important that any consumer that wants to get the proper information should contact their local insurance broker to get sound advice as to what coverage and how much coverage they should get for their home policy.
The cheapest home insurance quote will likely not be the best and it may not respond the way you would like it to in the event of a claim.
There are numerous of other coverages that should be discussed with your broker such as:
1. Service line coverage
2. Personal cyber protection
3. Home equipment breakdown
4. Identity theft
5. Bylaws
6. Rental income
Plus many more!
Be sure to contact Bethel Insurance Brokers at 905-683-2323 for a no obligation policy review and don't forget to join our newsletter to get the latest informational blog posts!