Insurance can be a confusing topic for many people. With so many different types of coverage available, it’s hard to know exactly what you need and how much. It doesn’t get any easier when you purchase a home. So many terms get tossed around – mortgage credit protection, mortgage default insurance, home insurance – how does one make sense of it all? This article will attempt to clear things up just a little by tackling the subject of home insurance, also referred to as fire insurance.
Types Of Home Insurance
Whether you own or rent your home, you need to make sure you’re protected with some type of home insurance. There’s simply too much at stake should you encounter damage or loss of your property or possessions. Not all home insurance plans are the same, however. There are various types, and most insurance companies will have a plan to meet your specific needs. Let’s take a look at a few of the coverage options available to homeowners.
Standard Homeowners Insurance
When you buy a home, one of the first items on the to-do list should be to purchase home insurance. In fact, if you’re taking out a mortgage, chances are it’ll be a requirement of the lender that you obtain a home insurance policy prior to the closing date. The coverage offered by home insurance is broad. In addition to covering loss or damage, it protects the contents in your home and your vehicle from theft. It can also protect you from accidents that occur on your property. If your house is damaged in a fire and you’re forced to live elsewhere for a period of time, your home insurance may also cover that expense.
What It Covers:
- Loss or damage to the home
- Theft of contents from your home or vehicle
- Accidental damage caused by you to another person’s property
- When necessary, additional living expenses
Tenants insurance shares many similarities with homeowners insurance, but it’s designed specifically for people who rent, rather than own, an apartment or home. The reason you want tenants insurance is simple. If your belongings are stolen or the place you’re renting is damaged, the property owner’s insurance policy will cover them from loss, but likely not you. You could lose not only possessions but potentially the roof over your head. Tenants insurance protects your belongings, any damage you may accidentally cause to your rental unit and perhaps even additional living expenses if you were forced to find alternate accommodations due to property damage.
What It Covers:
- The theft or loss of possessions
- Protection against accidental damage to the rental dwelling caused by you
- Accidental injury to your guests
- Additional living expenses
With tenants insurance, it’s important to purchase enough coverage to replace your possessions in case of loss. Taking a detailed inventory of everything you own will help to choose the appropriate amount.
If you live in a condo, the property owner will have insurance that protects the entire structure. That said, you’ll want to have a separate policy to protect the inside of your condo unit as well as a storage compartment, if applicable. Similar to the coverage mentioned above, condo insurance can protect you from injuries to others when they visit you in your home.
What It Covers:
- Damage to the inside of the condo dwelling
- Damage, theft or loss of possessions
- Additional living expenses if you’re forced to live outside your condo for a claim-related matter
Home-Based Business Insurance
If you run a home-based business and you have supplies or equipment on your property that are used for the business, they may not be covered by your standard home insurance policy against damage or loss. If this is the case, you should consider buying a separate insurance policy to cover your home-based business.
What It Covers:
- Damage to business equipment that’s located in your home
- Business equipment that’s stolen or damaged while outside your home
- Personal liability if someone is injured while visiting your home for the purpose of conducting business
- Tools that are stolen or damaged while in a vehicle or outside of your home, if used for business purposes
- Injury to a client while visiting your home, also known as personal liability
The Cost Of Home Insurance
Insurance companies consider a wide range of factors when determining your home insurance costs and the premiums you’ll pay. These include, but are not limited to, the following:
- Property value
- Value of contents
- The features of your chosen policy
- Your deductible amount
- Neighbourhood demographics, such as crime rate
- Proximity to emergency services, such as the police or fire station
- Property type, whether you live in a detached home, duplex or townhouse
- The age, size and location of your home
- Any policy add-ons
Obviously, the higher the replacement value of your home and/or possessions, the more expensive your premiums will be. Risk factors also play a role. For example, if your home is located in a neighbourhood that’s known to have a high crime rate, you’ll pay more due to an increased risk of theft or vandalism.
If you opt for a lower deductible (the amount you’re required to pay in the event of a claim), you’ll pay a higher premium. Lastly, there are add-ons, like additional coverage for valuables such as expensive jewellery or music equipment. Your insurance company may also offer enhanced coverage or services at an additional cost.
Are Vehicles Covered Under Homeowners Insurance?
In most cases, your home insurance policy won’t cover damage to your vehicle – that’s what your auto insurance is for. What it may cover is the value of any personal items if they’re stolen from your vehicle or accidentally damaged. You’ll want to read the policy details in full so you’re aware of what’s covered, as well as any exclusions.
How Much Home Insurance Do I Need?
When assessing how much home insurance you’ll need, consider the cost of replacing your home’s structure, the value of your possessions and the additional living expenses you would incur if you were forced to vacate your home for a period of time. If you can work out these costs, you’re well on your way. Of course, always make sure you consult with a professional, licensed insurance advisor. With their expertise, they can help you make the best choice for your situation.
Tom Drake is an authority in Canadian personal finance. He is a financial analyst and has been writing about personal finance since 2009 at the award-winning MapleMoney. His work has appeared in MintLife, Canadian MoneySaver, and U.S. News & World Report, and has been quoted in The Globe and Mail, Yahoo Finance, and Financial Post.