Though home insurance is not a legal requirement in Canada, most homes are likely to be insured for two major reasons:
The history of home insurance can be traced to the city of London when, after a series of devastating fires over a certain weekend, underwriters collected in a café known as Lloyd’s, to buy and sell insurance policies. Demand for policies was high on account of the recent series of fires that caused damages to many homes and financial losses to many people and it caught on.
Benjamin Franklin, one of the founding fathers of America, created the first fire insurance policy in the United States in 1752.
The baton seems to have been passed on by one founding father to another. It may not be commonly known, but Sir John A Macdonald, Canada’s founding father and the first prime minister, was also the president of the Dominion of Canada General Insurance Company which, in 1887, became one of the first companies in Canada to offer home insurance.
Today over a hundred companies, private and public included, offer home insurance to people in Canada for insuring homes, condos as well as rented properties.
A home insurance policy covers the dwelling unit along with attached structures such as, using common examples, a garage and a deck. Even unattached structures on the property, such as a fence, or a detached garage and tool shed are likely to be covered by the standard policy.
Apart from the structures, the policy covers you for damages in the event someone not normally on the property is injured while visiting the property. In parallel, it insures you from inadvertent damage you cause to the property of others.
The policy also covers valuables in your home. If any of such items are damaged or lost or stolen, you will receive compensation.
Standard cover provided by a home insurance policy could be broadly classified in two distinct types:
This covers injury to others on your property as well as you damaging the property of others.
This protects the insured against lawsuits and claims filed by a person who has suffered an injury while on your property. It is included in home insurance policies with the coverage amount varying based on need.
A tree branch on your property breaks off and injures a visitor. The visitor seeks damages as the event happened on your property. This cover protects you against such claims.
Voluntary property damage
This is to cover you for claims that could arise if you, most likely unintentionally, damaged someone else’s property.
Voluntary medical payments
This is to cover you against claims if you unintentionally injure another person on your property. The standard cover allows for medical expenses to be covered by your insurer for a period of one year from date of injury.
This is designed to cover the physical structure of your home, along with attached and/ or detached structures on the property, contents inside your home, as well as expenses incurred in living away for some time in case of extensive damage.
Dwelling building coverage
The basic structure, along with attached structures, is covered for all physical damage. The coverage is usually general, from all perils, except where specifically excluded. The cover extends to attached structures like a deck and garage and could extend to permanent outdoor installations such as swimming pools and playground or playset for children.
This is perhaps the most basic part of a home insurance policy and provides for the replacement cost of the home and its insured contents.
Detached private structures
This is similar to the coverage for the dwelling unit and could cover all perils, with specified exclusions, or only cover specified inclusions. A pool shed, fence and detached garage could be examples of detached structures on a property.
This is also known as ‘content insurance,’ protecting you against damage to property and belongings inside the dwelling unit and covers items that are used, owned and worn like furniture, personal clothing, jewellery, appliances, utensils and crockery and such like.
Additional living expenses
Sometimes the homeowner and other family members may need to seek refuge elsewhere, outside the dwelling unit, if the damage is such that it does not permit staying in the insured unit for some time. Expenses incurred on such living away from home will be covered.
While there are standard policies with fairly standard coverage in home insurance policies that make it easy to understand for buyers, each person and home have unique requirements. For this reason, insurance companies offer a wide variety of optional extras that can be taken on by people who perceive the need for them, rather than making them a part of standard policies.
Water damage has been identified as one of the foremost reasons for claims against insurance policies in Canada. The coverage varies widely from one insurer to another. While standard policy coverage may include burst pipes and appliances malfunctioning, additional coverage for sewer backup, overland flooding caused by spring thaw and rivers, streams overflowing their banks, etc. is often advised, depending upon the location of your property and its condition.
As work from home seems to have become the norm since the onset of the pandemic, and does not look like ging away in a hurry even when the threat of Covid-19 recedes, insurers are adding coverage for business related needs which may otherwise not be covered in the traditional home insurance policy.
Damage caused by earthquakes is not a standard cover in most home insurance policies in Canada, though damage caused by events such as lightning strikes, fire, hail and windstorms is. Earthquake damage can be added on for an extra premium.
Though personal belongings are covered under the standard home insurance policy, category sub-limits apply in many cases. If you have certain categories of items that are far more valuable than the standard sub-limits, you can purchase this policy for enhanced coverage for such items. Typically, items like jewellery and expensive sports goods might be the reason for taking such a policy.
This policy protects the premium. In a standard policy a claim being make against the policy could trigger an increase in rates. By purchasing this endorsement, the premium does not go up even if there is a claim.
This endorsement effectively enables you to move values between sub-limits under the overall policy and optimize your claims, if needed. As an example, if coverage for the contents of your home is $50,000 but the actual damage on account of a fire turns out to be $60,000, you can claim the balance $10,000 of losses from another section of the policy that might have an unused amount to that extent.
This feature triggers a reduction in the deductible with each coverage cycle in which there is no claim till it becomes NIL.
There could be a possibility that the losses are greater than the amount of coverage available on the policy. This endorsement guarantees the replacement or rebuilding cost of the home even if it amounts to a sum greater than the coverage.
There could be circumstances that cause you to leave your premises on account of a great danger, such as war or armed conflict. This cover is designed to cover you for some of the expenses you will incur due to this move.
Losing personal information such as what is present on Passports, Credit Cards, Bank Accounts and Driving Licenses can cause great damage. Some financial institutions have an omnibus coverage for money lost on cards issued by them. You can insure yourself against losses arising from identity theft through this endorsement.
A related cover to offset losses that arise from forgery and fraud can also be taken.
If there is damage to food in the freezer arising from either an external disruption in supply or a mechanical breakdown of the appliance, this add-on cover will protect you from the repeated expense of buying the same foodstuff all over again.
Apart from the loss of items, burglary attempts can also incapacitate protective equipment like locks. Locks may also need to be changed because you lose the keys to them. Additional protection to cover the expenses for the replacement is also available. You need to ensure that the loss/ burglary is reported to the right authorities before the insurer will process the claim.
Insurance rates can vary for a number of reasons which try to take into account the possibility of incurring damage. As a basic rule, the higher the possibility of damage, the higher the likely rate of insurance. This is the reason insurers require a lot of information to be submitted so that a more knowledgeable assessment can be made by the insurer. This could include the type pf roofing, the age of the house, alterations done, features added, quality of the electrical and plumbing works, proximity of water bodies, and many others. Incorrect information provided while buying a policy could impair the possibility of receiving a claim.
There are a number of factors that insurers evaluate while doing the premium calculation that have a bearing on the final number.
The location of the property could influence premium calculation in different ways.
If it is located in a seismically active area and earthquake coverage is sought, premium rates could be higher than in locations with no history of seismic activity.
If located in a crime-ridden area, premium rates could be higher because the possibility of theft, vandalism and break-ins would be higher.
A location that is near an airport could drive up premium rates because of the possibility of greater damage due to vibrations caused by aircraft landing and taking off; even from falling debris.
Natural surroundings and proximity of large bodies of water, or being at the base of a hill with the possibility of water accumulation, risk of flood, etc, could drive up premium rates.
If you are situated next to a fire hall, it could lower your premium rates with faster access to facilities for dousing a fire.
Is the property you seek to insure a motorhome, or a condo, or a semi-detached house? Each type of property carries its own set of unique risks and hence will be evaluated based on the risks applicable to the type. While a condo may not have an exposed roof, an independent house will have one. Besides, the exposed roof of a condo might be common space the upkeep of which is through contributions towards maintenance fees and subject to regulations, while you need to maintain the roof of an independent house on your own.
The use of an applicant’s credit score is permitted to insurers though one could argue that it adds no value to the risk evaluation process. Insurers, on the other hand, argue that that a definite correlation exists between insurance risk and credit history.
The factor to note here is that a good credit score could lead to a discount on premium while a poor credit score will not cause an increase in it. Hence, most people seeking insurance do not mind sharing credit information in the hope of getting a discount on the premium even though it is not mandatory. Discounts for good credit scores could be as high as 25%.
Some people interpret this to mean the market value of your insured property. In reality, in the books of insurers, it is the amount of money it will take to restore or rebuild the property to its pre-damage condition. This could be substantially lower than the market value and should be borne in mind so that you pay premium on the replacement cost and not the market value which could be higher, and which you will never get from the insurer. You will only end up paying a premium that is higher.
Replacement of insured belongings, however, could be subject to specific sub-limits. If found inadequate, additional coverage could be sought.
Changes you are making on an insured property should be kept in the knowledge of the insurer so that the insurance amount can be topped up if needed. Also, it ensures that through those enhancements you are not doing anything that could jeopardize a claim in case of need.
Water being the biggest driver for insurance claims in Canada is well known. Galvanized steel, lead and clay-pipe based plumbing infrastructure will not help you any with premium rates. These are prone to breaking and cracking and also known to leach toxic substances into the water supply and even create backups.
Modern solutions based on PVC, ABS and PEX plastic are long-lasting and sturdier in the face of cold weather. Copper piping continues to be a trusted resource in many homes which, along with plastic, will lower your premium rates.
And if you have installed damage prevention equipment like leak detectors and smart water shut-offs, you could even get a reduction of the premium as the possibility of damage gets reduced.
There are myriad solutions for heating homes in the cold months that have evolved. While a forced air furnace with ductwork continues to be a common solution, radiators or electric baseboards, or hot-water based traditional radiators that spread heat throughout the home, are also used, as is in-floor heating that operates like a big radiator beneath the floorboards and could be run on electricity or hot water. Even fireplaces and stoves that burn wood continue to be used.
Premium calculation will vary depending on the heating system implemented. Essentially it will be based on the assessed risk of damage that could be caused by fire, primarily, or even water in the water-borne heating systems.
Technology keeps advancing, trying to make life easier, safer and more efficient. However, in many cases, legacy systems might also continue until an event occurs that forces a change. Legacy electrical technology that includes knob and tube wiring, fuse boxes and aluminium wiring are known to be greater fire hazards than current equipment. They also tend to be damaging to equipment run on the infrastructure. Properties with legacy equipment are likely to face higher premium payments. In fact, mortgage lenders are known to refuse funding the purchase of such houses till the infrastructure is modernized. It might be a substantial one-time cost, but well worth it in terms of a payoff through lower home insurance premiums.
This could work both ways; increasing as well as decreasing the premium.
If you install expensive equipment and appliances, smarten up your dingy basement area, add a jacuzzi, put in a theatre room, it could increase the value of the property, which, in turn, will increase the premium for insuring it.
Implementing systems for better maintenance, such as a burglar alarm system, waterproofing the exteriors, sewer backflow preventer, chopping down, if permitted to, a tree that was threatening to fall on the roof, will go a long way in reducing the premium.
Putting a swimming pool on the property, on the other hand, could increase the premium, not because of increasing the valuation of the property, but because of the heightened risk perception on account of the possibility of drowning in the pool. Some provinces have laws specifying how a pool is to be secured when not in use.
In an independent unit, the roof is an important consideration. With gravity being what it is, the roof remains the most likely place for incursions by water which usually comes vertically down when it rains. Hence, a regular schedule of maintenance and upkeep is needed for the roof to stay in good shape, preventing vertical attacks.
The commonly used roofs of asphalt shingle are believed to have a shelf life of between 10 and 15 years after which they start curling back and wearing out. Loose shingles are also known to get picked up and blown away during windstorms, causing damage to neighbouring properties. There are many more material options available today than were available earlier. These include clay, metal and even ‘green’ roofs that are a bigger upfront investment but could last much longer.
There could even be a payoff in the form of a lower insurance premium as a result of a good quality roof.
History of claims is a bit like your credit history; it keeps adding up over a period of time. If you are making repeated claims for damages, you may come to be seen as a poor risk for insurance, resulting in escalation of premiums.
That is not to say that you should not claim when you need to. By all means you should. The point is that an insurance claim should be justified and made for the right reason. A minor scratch that can be easily repaired might not be worth making an insurance claim for.
A simple rule of thumb is that the amount of the claim that you make should grossly exceed your deductible. If it does not, you will anyway be paying most of the amount yourself, while spoiling your track record through repeated claims.
While on the subject, choosing a higher deductible can be one way of keeping the premium rates low.
This might be a surprise, but being a pet-owning homeowner could impact on the premium rates.
There are several possible reasons.
The pet you have could be an aggressive species and could hurt someone, a visitor, on the property, creating a liability on you for which you will need a cover.
Pets could also damage property with scratching and biting and chewing. Exotic and illegal pets could further queer the pitch for the homeowner seeking insurance for the property.
While a home is expected to be a dwelling unit, there could be other uses for it. Like use as a business. Though it may not directly impact on the premium, certain types of businesses that carry higher risk could. It could also increase the traffic to your house, increasing the possibility of an injury to the visitors.
Moreover, work from home has become commonplace ever since the world was struck by the Covid-19 pandemic. Even with the threat receding, work from home seems like an option that is here to stay. With a variety of business activities being carried out from home, there is a likelihood that some could be adjudged to carry a higher level of risk requiring an inflated premium to be paid.
Wherever you live and whatever you do, there is a home insurance cover available to meet your unique requirement.
A homeowner needs protection not only against damage to the property and its contents but also against claims arising from a visitor getting injured while on it. An owner of a condo might have similar requirements while a tenant may need cover for personal belongings not already covered by the insurance of the property owner. Tenants should also have their own insurance for injury to others while on the property they are renting.
There are three main types of home insurance policies available.
This is the insurance preferred by most homeowners as it provides the widest coverage and highest level of protection. As a basic mathematical construct, each incremental risk added to the coverage will add only a marginal amount to the premium. What this results in is that while the coverage in a Comprehensive policy could be substantially different from the other, more basic policies, the premium is not vastly higher.
The other factor is that some companies choose to issue only comprehensive home insurance policies, giving the others a wide berth.
In this policy, the physical structure of your home is covered along with its contents for physical damage and loss, but it will have generalized exclusions. Coverage is offered for specific, named risks as far as contents are concerned.
This is also referred to as the ‘named perils’ policy. Understandably, it is the cheapest cover available as it insures only specific possibilities that could cause damage to the property or its contents, with everything else being excluded.