Why should you have a home insurance policy?
Why should you have a home insurance policy? Well, to start with, if you have a mortgage your lender probably requires it. But even if you don’t, home insurance is a necessity for every Canadian homeowner—whether your home is a detached house or a condo.
Home insurance provides several important coverages that can help you out of a financial bind if the unfortunate should happen.
There are three main aspects to a homeowners insurance policy:
The first (and most significant) coverage on a homeowner’s insurance policy is the building coverage. When the house (or whatever form the dwelling takes) suffers damage in an insured loss, the homeowner’s insurance policy will respond to cover the cost of repairing or rebuilding it.
An insured loss is one covered by the terms of the policy. Every policy covers different situations, but most commonly things like fire, hail, and wind are covered by every home insurance policy in Canada. Other events like earthquakes or floods are covered only by some policies.
These events for which insurance policies do or do not offer coverage are known as perils. You should always be aware of the covered perils for any home insurance policy you buy. At the low end of coverage are Named Perils policies, which (appropriately) cover the perils named on the policy. At the high-end are Comprehensive policies, which offer coverage for everything except what the policy specifically excludes.
When you buy your policy, you might be given the option to decide on a coverage limit for your building coverage. Most insurers will offer an estimate of how much coverage you need, and it’s up to you to decide if that limit is enough to rebuild your home following a total loss.
The best type of building coverage includes Guaranteed Building Replacement. With this important coverage, your policy will pay the full cost of repairing or rebuilding your home, even if that cost is higher than your policy limit. Usually, the insurer will stipulate that you need to buy a certain level of coverage to qualify for Guaranteed Building Replacement.
Homeowners and condo owners policies also cover the moveable property inside your home—your furniture, clothing, kitchen gadgets, electronics, and so forth.
Your contents coverage will have a separate limit from the building coverage. Many home insurance providers automatically include a certain limit of contents coverage, based on a percentage of the building coverage. Other providers allow you to choose your own limit, based on your individual needs.
You should note: contents coverage doesn’t cover absolutely all your stuff. Exclusions vary between providers, but generally, speciality property like jewellery, collectibles, or sporting equipment may be subject to sublimits of coverage (meaning they’d be covered for a max of, say, $500, regardless of the overall policy limit). Other stuff, like motor vehicles or aircraft, are excluded entirely.
When you buy a home insurance policy, make sure you’re clear about what’s included with your contents coverage.
Home insurance policies also offer coverage for third-party personal and premises liability.
This coverage protects you if you’re found legally liable for something, and ordered to pay damages. Your home insurance policy can cover some or all of the legal costs and damages if you’re responsible for injury or damage to a third party or their property.
Personal liability relates to incidents where you’re found legally responsible for something based on your actions. For example, if you carelessly chop down a tree that crushes your neighbour’s shed.
Premises liability related to injury or damage you’re responsible for as a result of owning your home. For example, if someone slips and falls on your front step, you could be liable even though you didn’t directly cause the injury.
Liability coverage is standard on home insurance policies, but is subject to its own, separate limit. You can usually choose how much liability coverage you need; experts normally recommend $1-2 million in liability coverage. It sounds like a lot, but increasing your liability coverage is normally inexpensive.
As with any insurance coverage, liability coverage is not unlimited. For example, you would never be covered for intentionally injuring someone or intentionally damaging someone’s property.
What about condo insurance?
Condo insurance policies are quite similar to homeowners insurance policies, but with some important differences.
The main difference? Condo policies do not include building coverage. As a condo owner, you don’t actually own the building; you own what’s inside the walls of your unit, but the building itself is covered by a separate master policy. The building’s condo corporation (or strata council) is responsible for buying the master policy, and the individual owners are responsible for buying insurance for their own unit.
Your personal condo insurance policy will, however, need to cover improvements to your unit. The master policy is only meant to cover the cost of repairing the building to its original state; if you’ve invested a lot into renovating your unit, you would need your own policy to cover the cost of those upgrades.
Some condo insurance policies also offer coverage for other condo-specific concerns. Condo owners may find themselves having to pay a loss assessment, and some condo policies offer coverage for those, too. Loss assessments happen when the condo building’s master policy doesn’t have a high enough limit to cover a loss, or when the deductible is too high for the condo corporation to pay—the loss assessment shares the cost of the shortfall amongst all the unit owners.
Still other condo insurance providers offer services that can help you ensure that you’re getting the right coverage for your building. Every condo building has its own master policy and its own bylaws, so there’s no one-size-fits-all solution to condo insurance.