Home Insurance

What is your house actually worth to insurers?

By: Alyssa Fischer on September 13, 2017

In the past two years, more than 100,000 Canadians have been displaced from their homes due to wildfires — many of which are now growing more frequent and more intense. Of those evacuees, most are paying a monthly insurance premium to protect their properties and belongings in case of a natural disaster.

In an event like a wildfire, sometimes the claims process involves replacing an entire home that was lost in a fire. And that’s not a simple process. How much you receive back in the event of loss will depend on your deductible, your replacement policy and limits on your coverage.

To get some more insight into home insurance and catastrophic events, we spoke to Aaron Sutherland, vice president of pacific operations for the Insurance Bureau of Canada (IBC).

The difference between market value and replacement cost of a home

“Often if you’re evacuated, your first thought isn’t, okay – well, grab my insurance papers,” said Sutherland.

In the event of the loss of your home, you can file a claim to your insurer for the entire home. Depending on your coverage, your insurer may only reimburse your losses based on the replacement cost of your home, rather than the market value.

In other words, if your home were to burn down, your insurer will look at what the structure — and not the land it sits on — is actually worth.

“This harkens back to the details of the person’s coverage,” said Sutherland. “You can either get the actual cash-value of your property or you can go with replacement cost at the time of the policy application.”

An actual cash value (or ACV) policy, means that the claim will be based on the cost of buying another home in similar condition to your previous home, with depreciation factored in.

A replacement cost policy, the claim will be based on the cost of buying the same home of similar quality, with no depreciation factored in.

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“Shop around and find the best coverage for what suits your needs,” said Sutherland.

“We often spend a lot more time thinking about which TV we want or what computer we are going to purchase, and relatively little time thinking about protection for our most important asset – our home.”

Sutherland went on to explain that the IBC encourages consumers to think about their deductibles and understand what they are and how they work.

For example – if your auto insurance deductible is $500, and you are in a car accident with damages of $1,500, you will pay the $500 and your insurance company will pay the remainder.

Many people believe that their contents are not worth insuring. However, Sutherland said that once you add up all the possessions you’ve accumulated in your lifetime, you find out how much they are worth – and fast.

“Replacing them on your own in the case of a wildfire or flood can be expensive,” said Sutherland.

At the end of the day, having any insurance coverage is better than walking away without any financial support to cover losses. With climate change on the rise, having the right coverage in your policy is becoming more important than ever.