5 Things I’ve Learned About Home Insurance

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Be smart when it comes to home insurance and savings.

Our homes are probably the biggest investment we will ever make, so it’s important to protect them. We own two homes, our current 1888 Victorian and our 1950’s home in Walker’s Point that we currently rent out. We are not strangers when it comes to having top-notch home insurance, but for many, I know this can be a very confusing topic. 

Home insurance may seem hard to get your head around at first, but with a little understanding, you will be able to make the right decisions to protect your home and family adequately. 

Here are the top 5 things to consider when deciding on the best home insurance for you and your lifestyle.

1. There are three main types of home insurance

1) Comprehensive Home Insurance

A Comprehensive policy covers you for all risks to your home and possessions, except anything specifically excluded within your policy. For example, in some areas, certain ‘Acts of God’, such as flood damage, may not be included and will be stipulated as such, so read the fine print or make sure to ask these questions.

2) Basic or Named Perils Home Insurance

In this type of home insurance policy, the only risks you are covered for are mentioned specifically. For example, a named perils policy may list inclusions such as fire damage and theft but exclude water damage, so it is important to carefully consider what coverage you need for optimal peace of mind.

3) Broad Home Insurance

This type of home insurance is essentially a combination of basic and comprehensive coverage. Typically, it means that you receive comprehensive coverage on the property itself, with basic coverage for the contents of your home.

Some companies offer another kind of coverage, often referred to as a No Frills Policy, but this is usually only offered to cover buildings that don’t otherwise meet insurance standards, for example, due to a structural issue with the building. This is, of course, unlikely to relate to a primary place of residence.

2. Possessions can be insured for either current or cost value

If an item in your home is insured for Cash Value and you file a claim for it, you would receive whatever amount the item would be currently worth. For example, if you were to claim a television that you purchased 3 years ago, you may have paid $2500 for it. Still, due to depreciation, advances in technology, and general wear and tear, it may only be worth $1000 today. If that television were covered for cash value, you would only receive $1000 for it.

Conversely, if that television was insured for Actual Cost and you successfully claimed it, you would receive the full $2500 that you originally paid for it. Not surprisingly, covering high ticket items for Actual Cost over Cash Value usually bumps up the insurance premiums payable for that level of cover.

3. The Replacement Value of your home is NOT the same as its current market value or the original price you paid

People often mistakenly assume that the coverage to replace/rebuild their home after a loss will be equal to either its current market value or the original price they paid for it, but this is not the case. The insured home replacement cost is the amount that it would cost to replace/rebuild your home on its current land site. This means that the insured replacement cost does not include the cost of the land itself, nor any premium that you originally paid for the original property’s location. However, it’s important to cover your home for like-for-like quality when it comes to a rebuild.

4. You may need to extend your coverage for high-value items kept in your home

Home insurance policies cover home contents to a maximum value that is typically sufficient for most people’s requirements. However, if you keep precious items in your homes, such as specialized equipment or expensive jewelry, you may need to consider buying additional coverage to ensure these possessions. That being said, you may be able to offset your home insurance costs from your tax bill if you keep these items in a home office or if you’re a landlord. Discussing these specifics with an agent or broker will help you ensure that you adequately insure these items and utilize the tax breaks available to you.

5. Your home insurance covers ‘third party liability.’

If someone were to injure themselves at your property, the third party liability cover integrated into your home insurance would cover you for the financial responsibilities you may incur – up to the amount specified by your policy. That is why it is important to review this amount in line with your intended use for the property – for example, if you will be working from home and inviting the general public in, it’s imperative to ensure that your coverage is sufficient valid given your activities.

Moving into a new home is exciting, but it’s also a big task, and it’s essential not to gloss over the important details. When deciding on home insurance coverage, it’s important to understand what your policy does and doesn’t cover you for and what you need for your personal circumstances. An expert agent or broker can help you with this process and ensure that you get the most competitive rate.

 

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