Home Insurance

How much home insurance do you need?

By: Arshi Hossain on June 20, 2024
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While Canadian law doesn’t require homeowners to have insurance, most mortgage lenders do.  

So, if you’re currently browsing properties or thinking about getting a mortgage, chances are you’re also going to be looking into home insurance.  

For first-time home buyers, the question then becomes, what type of home insurance coverage, and how much of it do you need?  

How does home insurance work? 

Homeowners insurance is a contract between a homeowner and an insurance company. The contract (known as an insurance policy) states that the company will reimburse the policyholder for damages or losses caused by problems listed in the contract, up to a certain limit. 

A home insurance premium is the money paid by the homeowner regularly (monthly, quarterly, semi-annually, or annually) in exchange for the potential damages that may arise as stipulated under the policy – otherwise known as covered losses.  

If you, as a homeowner, experience a covered loss, you can file a claim, essentially asking your insurance company for reimbursement (minus your deductible). 

Generally, your insurance coverage should be enough to rebuild your house if it’s ever destroyed. This amount is commonly referred to as the ‘replacement cost’. The replacement cost might differ from the original purchase price or the current selling price. 

Your replacement cost is influenced by various things, including but not limited to: 

House size: Larger homes generally cost more to rebuild. 

Features: High-end features (like a gourmet kitchen) increase the replacement cost. 

Local building costs: Construction expenses in your area impact the overall cost. 

Related: Replacement value is central to home insurance pricing. Here’s why  

What does a basic (or named perils) home insurance policy cover? 

Basic insurance, also known as ‘named perils insurance’, covers specific risks explicitly listed in your home insurance policy. 

It’s the most affordable policy option but provides narrow coverage because it only protects against a limited set of perils—those specifically named in the policy. 

Here’s what it covers: 

Property coverage  

Protection for the structure of your home against specific perils. These might include: 

Liability coverage  

Shields you from lawsuits arising due to incidents on your property. 

Some scenarios it will cover: 

  • If someone slips and gets injured on a broken step at your home, liability coverage may help cover medical expenses. 
  • If you accidentally damage someone else’s property, liability insurance provides protection. 
  • Covers unintentional damage caused by a child under your care. 

Most personal liability insurance policies default to $100,000 in coverage, however, it’s generally recommended to carry at least $1 million in personal liability coverage on your home insurance policy but limits up to $5 million are available. 

Pros and cons of basic insurance 

Here are some pros to having a basic insurance policy: 

  • Premiums are more affordable. 
  • Suitable for specific situations (e.g., homes undergoing renovations or remote vacation properties). 

Here are some cons: 

  • Limited coverage—only named perils are protected. 
  • Excludes significant risks like floods and earthquakes. 

What does a ‘broad’ insurance policy cover? 

Broad home insurance covers your home in case it’s damaged or destroyed by external factors (such as fire, lightning, smoke, theft, explosions, electrical current, aircraft, or vehicle impact). This insurance is more expensive than a basic plan because it covers physical structures such as your home, shed or garage. 

However, it extends coverage to your home’s contents (furniture, clothing, appliances, electronics) only for specifically named perils. Contents coverage is limited to risks explicitly listed in the policy. However, it typically doesn’t cover motor vehicles—even if they’re on your property — since vehicles that require separate insurance policies fall outside its scope. If you’re looking to insure items within your vehicle, consider specific content insurance policies designed for that purpose.  

Scenario: If your home is destroyed in a fire, a broad home insurance policy would pay for rebuilding the structure (including clearing the land, hiring an architect, and construction costs). 

Here are some commonly covered perils: 

  • Fire 
  • Lightning 
  • Smoke 
  • Theft 
  • Explosions 
  • Electrical current 
  • Aircraft or vehicle impact 
  • Falling objects 

Related: How is fault determined in the world of home insurance? 

What does a comprehensive insurance policy cover? 

Comprehensive home insurance (also known as “all perils” insurance) is the most common type of coverage in Canada. It protects both your home and belongings against a wide range of incidents, not limited to a specific list of named perils. Comprehensive policies cover replacement costs for both the building and its contents. 

Scenario: After a fire, a comprehensive policy pays for rebuilding the structure and replaces furniture, clothing, appliances, and electronics. It covers contents even if the house itself isn’t damaged (e.g., stolen items or damage from a power surge). 

Insurance add-ons

If you require additional coverage beyond the standard insurance, you can expand your policy by adding “endorsements” or “amendments.” These modifications enhance your existing coverage. 

Earthquake coverage

Earthquakes are typically excluded from standard policies. However, you can add earthquake coverage as an endorsement if you live in an area prone to seismic activity. 

Flood protection 

Basic policies usually exclude flood protection. If your home is in a flood-prone area, consider purchasing separate flood insurance or an endorsement to cover water damage from flooding

Sewer back-up

If a main sewer artery backs up into your home, you'll be covered for incurred costs

Mass evacuation insurance

In regions prone to natural disasters (such as wildfires or floods), mass evacuation insurance covers expenses incurred during forced evacuations, including temporary lodging, meals, and transportation. 

Absence from the home 

If you leave your home unoccupied for an extended period (usually 30 days or more), standard home insurance might not cover damage that occurs during your absence. However, you can purchase “vacant home insurance” to protect against this scenario. 

Damage from renters

Most standard home insurance policies don’t automatically cover damage caused by renters. If you’re a landlord, consider getting specific landlord insurance to protect your property from tenant-related risks

Home-based business protection

If you run a business from home, standard home insurance won't cover business-related risks. Adding a “home-based business endorsement” will protect your business equipment, inventory, and liability. This endorsement ensures that your business assets are adequately insured, even within your home. 

Lock replacement or locksmith coverage

After a break-in, replacing damaged locks and securing your home is important. Lock replacement coverage ensures that you’re not left vulnerable. It covers the cost of new locks and keys. 

Rider policies for valuables

Standard home insurance has limits on coverage for high-value items like jewelry, art, or musical instruments. A rider (also known as a floater or endorsement) allows you to specifically insure these valuables. You’ll need appraisals or receipts to determine their worth, but it ensures adequate protection against loss, theft, or damage. 

Home insurance won’t cover damage that existed before you held the policy. It’s essential to maintain your property and address any pre-existing issues promptly. 

Remember to review your policy carefully and consider additional endorsements or specialized coverage to address specific risks. If you have any doubts, consult with your insurance provider to ensure you’re adequately protected. 

What are ‘additional living expenses’, and are they covered? 

Additional Living Expenses (ALE) coverage is not automatically included in all home insurance policies. However, it is a common feature in most standard policies.  

ALE helps cover costs when you’re temporarily displaced from your home due to a covered loss (like a fire or storm damage). These expenses may include hotel stays, meals, and transportation while your home is being repaired. It’s essential to review your policy to confirm if ALE is included and understand the limits and conditions. 

Related: One third of homeowners worried about extreme weather damage 

Do you need contents’ coverage? 

Contents’ insurance safeguards your personal possessions within your home in case of damage, destruction, or theft.  

Contents insurance extends to various items: 

  • Furniture: Sofas, tables, chairs, beds, etc. 
  • Electronics: TVs, laptops, smartphones, etc. 
  • Clothing: Wardrobes, shoes, accessories, etc. 
  • Art and jewelry: Paintings, sculptures, necklaces, rings, etc. 
  • Appliances: Refrigerators, stoves, air conditioners, furnaces, etc. 

Determining coverage amount 

You should have enough contents coverage to replace everything in your home if it were to burn down. Consider all your belongings, including appliances, electronics, and personal items. 

You have two options for coverage: 

Actual cash value (ACV): Accounts for depreciation. For instance, if your 3-year-old laptop is damaged, ACV coverage would pay for a similar 3-year-old laptop. 

Replacement value: Pays to replace items with new ones. If you choose this option, your insurer will buy you a brand-new laptop.  

Calculating coverage 

Insurance companies often recommend that your contents coverage equals a percentage of your dwelling coverage (the value of your home). The suggested range is typically 50% to 80% of your dwelling coverage. 

Example: If your home is insured for $700,000 replacement value, consider contents coverage between $350,000 and $560,000. 

Room-by-room estimation — A better approach is to assess each room in your home: 

  • Estimate the cost to replace furniture, electronics, clothing, and other items. 
  • Remember that you’ll likely want new items in case of a claim. 
  • Be aware that standard home insurance policies may have limits for certain valuables. 
  • Consider separate coverage for high-value items like rare jewelry. 

Remember, keeping records (including receipts) of your possessions simplifies the claims process. 

Related: 5 things you don’t have to share with your home insurance company 

Umbrella insurance boosts your liability coverage

Umbrella insurance provides an extra layer of liability coverage beyond your existing policies (such as auto or home). It kicks in when the limits of your home insurance coverage are exhausted.  

While not essential for everyone, umbrella insurance is valuable if you: 

  • Have potential hazards on your property (e.g., a swimming pool). 
  • Engaging in risky activities such as traveling abroad often or participating in dangerous sports may warrant enhanced coverage. 
  • You’re a high-profile individual and are more likely to be involved in a libel, slander or defamation lawsuit.  
  • You have a child or a pet, both of which bring on unpredictable situations.  
  • If you can afford it for extra peace of mind. 

How are home insurance premiums calculated? 

Home insurance calculation in Canada involves several factors that insurers consider when determining your rates. Let’s break some of them down: 

Claims history: Your claims history matters. If you’ve made previous claims or live in an area with frequent claims, your rates may be higher. 

Age and location of home: Older homes or those in high-crime neighborhoods might cost more to insure due to increased risks. 

Coverage amount: While basic coverage is essential, some people opt for additional protection beyond the standard packages. Depending on which endorsements or add-ons you include, your premiums will be influenced. 

Home size: Larger homes may cost more to repair and typically hold more items that might need replacement. 

Wiring and plumbing: Outdated wiring and plumbing can lead to damage, affecting your claims and rates. 

Proximity to fire hydrants: Living near fire hydrants or stations can reduce damage during fires, potentially earning you a discount. 

Heating system: Insurers prefer water-based radiators over gas or oil systems. Poorly maintained wood stoves pose risks. 

Fixed deductibles: These are specific dollar amounts (e.g., $1,000 or $1,500). If you make a claim, you pay this amount first, and then your insurer covers the rest. 

Percentage deductibles: Instead of a fixed amount, it’s a percentage of your home’s insured value (usually 1% to 5%). For example, if your home is insured for $500,000 and you have a 2% deductible, you’d pay $10,000 before insurance covers the rest. 

What is a deductible? 

An insurance deductible is the sum you commit to paying out of pocket before filing claims for an insurance event.   

Higher deductibles = lower premiums: Opting for a higher deductible reduces your premium. Since you’re agreeing to pay more out of pocket in case of a claim, the insurer charges less upfront. 

Lower deductibles = higher premiums: Conversely, lower deductibles mean higher premiums. You pay less initially, but your insurer covers more in case of a claim. 

Using a home insurance calculator can help estimate costs and compare quotes from multiple insurers.  

What’s the average price of home insurance in Canada? 

The cost of home insurance in Canada varies across the country. In Ontario, the average rate is $1,487, while in Alberta, the average premium is $2,339. Keep in mind that this figure can vary significantly from one province to another. 

If you’re a homeowner in Ontario, you can take advantage of several potential insurance discounts. Here are some common ones: 

  • Bundled home and auto insurance discount: If you combine your home and auto insurance policies with the same insurer, you can save on premiums. 
  • Fire and burglar alarm discount: Installing security systems such as fire alarms and burglar alarms can lead to additional savings. 
  • Loyalty discount: Staying loyal to the same insurance provider may qualify you for discounts over time. 
  • Mature-age discount: Some insurers offer age-related discounts, especially for mature homeowners. 
  • Mortgage-free home discount: Being mortgage-free can result in lower insurance costs. 
  • Multi-property home insurance discount: If you own multiple properties (such as a primary residence and a vacation home), you might be eligible for cost savings. 
  • Non-smoker discount: Non-smokers often receive favorable rates due to reduced risk. 
  • Unfinished basement discount: Having an unfinished basement might lead to discounts, as it poses less risk for certain perils and will cost less in claim payouts if you were to file a claim for any damages. 
  • Water alarm home discount: Installing water alarms can help prevent water damage and may qualify you for insurance cost savings. 

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