Insurance is quite a confusing area and if you’re not asking the right questions, reading the fine print and picking the right coverage, you may be left for dry when the time comes to file a claim. Like any other business, insurance companies are in the business to make money. If you have home insurance or auto insurance, the primary goal of the insurance company is to collect as much premium from you, in hopes of not giving any of it back in return. Fortunately, everyone has a choice to choose between mandatory and non-mandatory insurance. Not a lot of of choice, but some is better than none. Auto insurance is mandatory in Ontario, while home insurance is non-mandatory.
When I purchased my first home in 2009. My realtor was certain that I needed home insurance, simply because the bank was going to ask for it prior to closing. And it made sense, at least briefly. Bank provides me a loan (mortgage) for the home, technically they own the home and wan’t some security in their investment in case of a disaster. End result was different – I didn’t need my own insurance. Since I live in a condo, the condo board provided basic insurance on all units, in case of fire or a major flood.
Regardless if you need or want home insurance, it’s wise to have have insurance. It’s simply peace of mind. You protect your self and your contents against the worst.
You have to choose what kind of coverage you will need. The replacement value of your house and its contents play a major deciding factor, together with what location of your home within the city. Coverage for such points as floods, tornadoes, and earthquakes are all regarded as extra coverage.
Pay close attention to the different types of coverage options. For example, if you live in a primarily brick house or older condo (which is mostly brick), your home is prone less damage in case of a massive fire versus someone who lives in a newer home, where mostly everything is out of drywall.
Furthermore, don’t be surprised if you have to answer a long questionnaire. Most of the questions seem simple, but each answer to the questions determines your final liability. For example, if you own a condo, you will be asked if you have 24/7 security concierge or cameras at the front and rear of the building. Why? The more security you have, the less chance of major damage or someone breaking into your home, the less liability the insurance company has to take on and in return the savings are passed back to you.
Another way to potentially save money on homeowners insurance is to raise the deductible. The deductible is the amount of money that the homeowner pays before the insurance company starts paying. Many homeowners have a low deductible so that if they need to use their insurance, they don’t have to pay a large portion of out-of-pocket themselves. The insurance is less expensive monthly or annually if the homeowner raises the deductible. However, the homeowner would have to pay more in the event they wanted to report a claim to the insurance company, but the annual cost of the insurance would decrease, and for most people who rarely use their homeowners insurance this is a safe way to decrease the cost of the insurance on a month to month basis.
Like I said above, insurance is confusing and insurance companies definitely don’t make it easy for you to understand with their jargon. For example, if the homeowner files a claim through home insurance for stolen or damaged items you’d expected to be reimbursed for replacing the items at today’s prices. This is only true if you have the magic words replacement value are in your policy. If so, you will get enough to purchase something equivalent at today’s prices. On the other hand, if you have a standard home policy you will only get the value of your contents less depreciation.
If you’re into antiques, art, collectibles or jewellery and your home is broken into and they are stolen, you may have difficulty establishing the value unless you have a professional appraisal.
Let’s take it up another notch. Homeowner owns a condo and has personal belongings stored downstairs in the building locker room and some other contents are stored in a self-storage unit, half a block away. There is a break-in at the self-storage unit. Homeowners home insurance policy would cover the theft, right?
Not so fast. A condo policy would cover theft only in the building a locker-room by the homeowners insurance policy, while the contents located in a self-storage unit and on a different property would not be covered. The key word here is different property, which results in no coverage.
Keep in mind the clauses you might run into along the way, if you ever put a claim through. Some of the more familiar clauses might be:
- Certain contents are covered for only 30 days
- This policy does not cover contents with a value grater than “X” amount
- You will be reimbursed only 50% of the total value per item
- Insurance policy holder pays the deductible first
For example, if the value of your stolen contents is $700 and the deductible is $500, it may not be worthwhile to file a claim, simply because homeowner would be paying 71% out of his pocket. And more than likely, the value of the contents is less than the deductible in most cases.
In today’s economy, saving money is of interest to everyone. Shopping around for homeowner’s insurance is not something to take lightly, there are ways to make certain that everything that is spent on insurance is necessary, and therefore the homeowner might be able to save some much needed money. All you have to do is ask the right questions.
