Home Insurance Myths: Learn the Truth About Home Insurance
Home insurance can be confusing, so be sure you’re not falling for the myths about how it works and costs.
When it comes to home insurance and what it covers, don’t assume anything. The devil is in the details, and while it’s tempting to skim over the fine print, the last thing you want is a nasty surprise when it comes time to make a claim.
Myths about home insurance are plentiful, whether it’s how much it costs, what it covers, what compensation you can expect, or whose policy kicks in when your home or property is damaged. Let’s separate fact from fiction:
All homeowners’ insurance policies are the same.
False. Policies vary significantly between providers, and they are uniquely written for each dwelling based on a homeowner’s needs. That’s why it’s worthwhile to ask your insurer or broker for a review of your policy and the policy’s limits that spell out what the maximum amounts are for specific perils, so you understand what you have coverage for and how much.
A home insurance policy is determined by its market value.
False. At a time when housing prices are hot and heating up in most Canadian markets, you might assume your insurance policy covers your home for its market value. However, your home is only insured for the cost to rebuild it — that’s an entirely different dollar figure. While market value considers your home’s location, the value of the land it sits on, and how much similar homes sell for in the neighbourhood, your insurance policy cares about the rebuild value. Your coverage reflects how much it costs to replace the same house, including the materials, labour, and permits.
Damage caused by an earthquake will be covered.
Maybe. Another myth is that your insurance coverage will automatically cover its repair or replacement if it is damaged or destroyed, but it depends on the nature of the disaster. Earthquake coverage is generally not automatic, although it can be added to your policy. How much it will cost will vary depending on whether you live in a region where earthquakes are common or not.
Damage caused by insects or rodents are covered by your policy.
Not necessarily. Damage caused by insects or rodents may not be covered under your home insurance policy, whether it’s squirrels, mice, rats and even raccoons. While there may exceptions or additional coverage you can purchase, you’re on the hook when little creatures snack on your house.
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Even if my home is unoccupied, I am completely covered.
It depends. Some coverage is dependent on you being home. If you go on vacation, you need to take certain precautions so your home is protected; otherwise, you may void your policy. For example, you must take steps to ensure the home’s heating is maintained so the pipes don’t freeze and burst, and your insurer may require that someone checks your home regularly during your absence. These requirements differ depending on the policy.
It does not matter where your home is.
False. Home insurance policies not only vary greatly from provider to another, but also from postal code to postal code. If you move from one part of the country to another, you may find your insurance costs differ wildly even if your new home is like your old one.
If you live in an area where theft or vandalism is common, your premiums will be higher, although installing a security system may make you eligible for a discount. Living far away from a fire hydrant also increases your insurance costs because it reduces the chances of putting out a fire quickly and would result in your claim being higher.
A home insurance policy covers damage from all weather-related events.
False. Some regions are prone to certain kinds of weather more frequently that cause damage, such as tornadoes, and that risk will affect your insurance costs. Weather patterns involve water, which is an important variable when it comes to your insurance. When it comes to flooding, your policy usually protects you against the sudden and accidental entry or release of water in your home that it a result of burst pipes.
However, a typical home insurance policy generally doesn’t protect you against “overland flooding,” which occurs when water flows over normally dry land due to melting snow or an overflowing river. It’s optional coverage you have to make a point of adding. Likewise, sewer backup protection is also optional coverage worth considering in case the sanitary and storm sewer systems can’t keep up and cause water to back up into your home.
Living in an older home is cheaper to insure.
Not necessarily. If you think an older home won’t cost as much to insure, think again. Your coverage may cost more. The older the home, the more likely something may go wrong thanks to things like older plumbing and electrical wiring, an aging roof, and because the structure itself is older.
Home insurance covers the cost of maintenance to a home.
False. Your insurance doesn’t cover maintenance or upkeep of the building. When it comes time to replace the roof, you must foot the bill. That is why you need to be proactive ensuring your dwelling is in good condition. Your home insurance policy is not a general maintenance contract.
If your TV is stolen, your insurer will give you the money to replace it.
Possibly. While the contents of your house affect the price of your home insurance policy, there are limits set on your valuables. If your TV is stolen, your claim will cover the replacement cost, but also factor in your depreciation costs. Valuables such as jewelry, art, and electronics are covered but always subject to a special policy limit. If you collect any of these in significant quantity and at high prices, or if you have a valuable collection of any item such as stamps, you need to consider purchasing extra insurance.
The belongings of a tenant or boarder are covered by your home insurance policy.
Not necessarily. If you have a tenant or boarder living in your home, their belongings may not be covered by your policy. Be sure to inform your broker if you are renting a room or the basement to a tenant to ensure you’re adequately covered, otherwise, you run the risk of a claim being denied if you file one. Also, encourage your boarder or tenant to buy tenant or renter insurance so their possessions are covered.
If you shop around, your home insurance premium will increase.
False. You can update your insurance to reflect your coverage needs at any time. Shopping around for home insurance will not cause your rates to rise, and you can cancel your policy before its renewal if you find better options with another provider, although you may incur a cancellation fee. You are not locked-in to that policy for a whole year.
Home insurance premiums are the same regardless of the insurer.
False. The most important thing to remember is home insurance rates vary considerably from one insurer to another, so you should always shop around and to find the best price. Moreover, if you bundle your home insurance with an auto insurance policy, most insurers will provide you with a discount.