Does Property Assessment Affect Home Insurance?

You may think of property assessment as linked to your property taxes. That's definitely the case, but it may also affect your home insurance as well. That's because the terms of your home insurance policy may refer to the "replacement value" of your home. So just how does your insurer calculate replacement value, and should you chat with them after receiving a higher property assessment?

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What Is a Property Assessment?

Municipal agencies use property assessments to determine your property taxes. Every region does it a bit differently. In Ontario, the Municipal Property Assessment Corporation does an assessment every four years. In Alberta, the process happens every year. How the agencies assess the value of your home varies too, even within the same provincial regime. In Alberta, most residential properties are assessed using a market value standard; in Ontario the agency uses a direct comparison approach with reference to recent sales.

Often, there's a delay between the timing of the agency's analysis and when you receive your assessment -- it can be a year or more. That may mean the government's numbers may look very different from what a realtor may designate the list price for your property. Nonetheless, it's how the government calculates your taxes.

Replacement Value and Your Insurance Policy

So what does this mean for your home insurance? Strictly speaking, it may mean nothing at all -- that's because your insurer does not set its premium rates based on the market value of your home. Instead, it looks at a list of factors, including the replacement value. That's how much it would cost to rebuild your home in the event you lost everything. According to the Insurance Bureau of Canada, the replacement cost is different from market value or your tax assessment, however it’s calculated.

That doesn't mean your property assessment shouldn't make you think about home insurance. On the contrary, it can be an important opportunity to review your current coverage.

Do You Need to Update Your Home Insurance Policy?

Imagine if you were to suffer a total loss of your home. It would be devastating, and you may not have enough insurance coverage to handle it. You're in fact obligated to tell your insurer if you have made any major changes to your property that affect the cost of a claim. That includes renovations, new additions, or structures you have added to the property. If you haven't reported these alterations, your insurer may refuse to pay a claim in the event of damage. You can talk to the company about revising your policy to take these improvements into account.

You may also have the option of purchasing guaranteed replacement cost coverage. That means your insurer will pay what it costs to rebuild your home, even if the amount is beyond your policy limits. This may make your premiums more expensive but offers a great benefit in the event you need the assistance.

Want to know more about your choices for coverage? Check out home insurance quotes on Kanetix.ca.

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