When you purchase your home insurance, it is typically a time when there is a lot going on and you are under extreme pressure to remove conditions of your home and finalize the deal so you can move into your home. We are here to help you navigate through the important pieces of an insurance policy and what you should pay attention to.
One common misunderstanding is that insurance is a maintenance policy and covers things like wear and tear. Unfortunately, this is not the case. When you buy a home, you are buying all of it. The beautiful things but also the imperfections – curled up shingles, old plumbing and electrical, etc.
Think of it like the insurance on your car. Your auto insurance doesn’t pay for your oil changes or squeaky brakes, but it may pay for the theft or collision damages from hitting another vehicle.
What are the main points of concern I should be aware of when buying a home policy?
Property Coverage
Every insurance company will offer coverage options for you to consider. They may use words like “All Risk” or “Comprehensive” or “Broad Package” or “Named Perils.” Each coverage will have wordings attached to those coverages.
Comprehensive coverage for example, will typically be worded as “We cover any direct physical loss or damage to the property described in the declaration pages, excluding the following” and then they would list a variety of exclusions to your policy. If they aren’t excluded, they should most likely be covered.
Whereas, Named Perils coverage would list the “perils” that are covered under the policy and if it doesn’t fall on the list, it would not be covered. Example: Fire, Lightning, Smoke, Vandalism, etc.
Optional Endorsements
Once you have selected a package to cover your home, you can add on additional coverages that may or may not be applicable to your situation. These coverages will have varying limits, deductible options, exclusions and extensions. It is important to ask for any additional coverages that may be applicable to your situation.
For example: You might be more likely to consider Water Protection coverage (Flood / Sewer Backup) for your home if you live nearby water or marshy land or in a municipality that has poor infrastructure. If you live in a high rise condo or you live on a hill with no basement, you may not be as concerned, however, it is still important to review with your broker so they can inform you of all potential risks – such as insuring your toilet from backing up and flooding the suite below you.
Optional coverages can include: Reduced Glass Breakage Deductible, Service Line Coverage, Home Systems Protection, Sewer Backup, Flood, Condo Deductible buy-down coverage, etc.
Liability – this is important!
Whether you are a homeowner, renter, business owner or you own your own vehicle. You should always review your liability coverage. Liability coverage protects you financially if you are found negligent for causing injury or property damage to someone and you are sued civilly for these unintentional damages. You must take reasonable care that you do not, or your property does not harm someone else or their property. If you do not, you may be negligent. People who are hurt or whose property is unintentionally damaged because of your negligence may have a legal right to be paid for their damages. A liability claim or action brought against you can come from a single event or it can come from a continuous or repeated condition. Typically, an insurance company will only pay compensatory damages for bodily injury or property damage. They will also pay for claims arising out of your personal actions anywhere in the world, including claims due to your actions while engaged in volunteer work for a charitable or non-profit organization.
If you lose a laptop or your bathroom floods, it is financially frustrating. However, if you are sued for negligence and are found guilty of millions of dollars in damages, this can financially RUIN you. Please make sure your liability limits are adequate.
What if I own expensive jewelry or recreational equipment, is that automatically covered?
Almost every homeowners package will include some type of coverage for your personal belongings. However, there are certain items that are restricted, limited or excluded from this coverage. This is where it is important to review your wordings and discuss with your broker any items in particular you are worried about insuring.
For example, if you own a 2015 Fishing Boat worth $25,000. You would need to add the boat additionally to your home insurance as this would not be included in your personal belongings. It is important to check that your boat trailer is insured. The boat trailer insurance does not typically insure the boat itself, while on the trailer, so make sure you double check that. Watercraft liability should also be added onto your policy in the event you injure someone or damage someone’s property while operating the boat.
Jewelry is included as belongings, however, you might be capped on an amount of coverage if the loss is caused by theft. For example, if you have a $25,000 ring and it is stolen, your insurance company might only pay out $10,000 for those types of losses. If you want additional coverage, you will need to schedule it onto your policy for additional premium.
What if I won’t want to insure something?”
Every person, property or risk has different variables that will come into play when determining the policy rates, coverages and limits. That is why you should research your policy and have a discussion with your broker on risk/rewards of the policy you are purchasing.
Some property may be low risk or low value, therefore coverage might not need to be purchased. This metric can be measured based on the location of the property, value of the property or the overall risk that the client is willing to absorb on their own. This is called “Self Insurance” – where you are willing to risk not insuring something because you feel the risk is low that something bad will happen and if something bad does happen, you’re willing to accept the financial consequences.
For example, you buy a rental home. You want to insure the home as it has significant value. However, the appliances inside the rental are relatively worthless. The washer and dryer and stove and fridge are older and inexpensive. When you add them all up, it amounts to $5000. You may choose to not insure the appliances as you feel you would likely just replace them anyways. However, if you purchased a home with all new appliances and it came completely furnished, you may choose at that point in time to insure the belongings and appliances for a total of $100,000 as there is more of an investment to protect. Each home and situation is different, so use your discretion and dialogue with your broker to come to an informed decision.
In summation
There are many things to consider when you purchase home insurance. Property condition, value and risks; Liability exposure and where you could potentially be found negligent; Protection from elements completely out of your control. Be sure to review your policy thoroughly with your broker to understand your coverage and be prepared for the potential threats you may be exposed to.
