Some insurance mistakes are universal, such as not paying your premiums. That doesn’t need much explanation! Everyone knows that not paying your premiums is a big no-no. But in this post, we’ll dive deeper into some other home insurance mistakes that could end up costing you you.
This is the second part of our series. Check out our previous post on car insurance mistakes, so you can be a smart shopper. Now onwards to today’s topic: Common home insurance mistakes you can make and how to avoid them.
A common home insurance mistake happens when determining how much to insure the home for. Luckily, today the vast majority of home insurance policies in Canada have something called Guaranteed Replacement Cost. This means that no matter what the Home Coverage (Coverage A: Dwelling Building) amount is, the insurance company will pay whatever it costs to rebuild your home. Eg. If your home is insured for $600k and it burns down and costs $900k to rebuild from scratch, the insurance company will pay for it, no matter what.
This means that the amount of Coverage A is used solely for determining your premium to pay. It becomes useless other than to charge you money. Over time most policies have an inflation amount of 3% per year. Over ten years your coverage amount can go from $600k to $800k without your home actually changing. That’s a 30% increase in your home insurance premiums for nothing!
Takeaway: The mistake here is not shopping around to find a lower limit for your home, therefore a lower price, while still maintaining Guaranteed Replacement Coverage.
Secondly, a lot of people think they are insuring their home for the market value. This is not true. You are insuring your home for the amount to tear down and rebuild it with similar quality and materials. If your home is insured for a rebuild value of $600k but the market value is $1M, don’t be concerned. You are not insuring the land or the lot value.
Conversely, if your home is insured for $1M and the market value is $600k, something might be wrong and it’s time to call your broker or shop around. Again, it’s the rebuild amount that matters and it’s only for pricing.
Takeaway: The common home insurance mistake here is to not have Guaranteed Replacement Cost coverage and not disclosing correct details of your home to your insurer.
We could write a whole article about water damage and water related coverage, but we’ll save that for later. For now, what you need to know is that this is the biggest home insurance mistake you can make.
Home Insurance used to be referred to as “fire insurance” since this was the most common type of loss. Nowadays, it should be called “water insurance”. With Climate Change and frequent catastrophic weather events occurring, water is now the most important coverage, and not all insurance policies are equal.
In recent years Overland Water or Flood Coverage has been introduced to the market since many, many homes have gone essentially uncovered for decades. Prior to this recent change, most policies had Sewer Backup Coverage which covered water coming up from under the house. In the event of a flood, it became difficult to tell which water came up from the sewers and which water came in from the surface, co-mingling together. Insurers denied a lot of claims unnecessarily. Now you can purchase Flood Coverage, but the eligibility, coverage and pricing vary drastically from insurer to insurer.
Takeaway: The biggest home insurance mistake you can make is not taking water coverage into account, do it at your own risk. It’s best to talk to a professional and pay a little more for this coverage if there is good value.
Are you married? Do you and your spouse have wedding rings? Did you specifically insure them as a scheduled item on your home insurance policy? You didn’t? That puts you in a very large majority of people who have not done so. Did you know there’s probably a $5000 limit of coverage under your insurance policy for all jewelry in your home? Uh, oh! I feel a mistake coming on.
Do you have sports equipment like a hockey bag? Have a laptop or family heirlooms like silverware? Do you collect anything? Were you energy savvy and installed solar panels on your roof? I’ve got bad news for you because none of these are covered for very much, if at all, under your home insurance policy.
The good news is you can insure them specifically for their full value on your home policy as a “floater”. Just pick the value or show an appraisal and pay an extra premium for it.
Takeaway: Don’t make the common home insurance mistake of having your most precious items uncovered. Protect your valuables.
Some consumers think home insurance is home insurance, one size fits all. We can’t blame them. It’s a complicated product. Today between home flipping, renting to students, international homeowners, babysitting, Airbnb and the like, there is a lot to consider. None of these things are covered under a standard home insurance policy. But all of them can be covered for a price when done correctly.
Having people renting your home or parts of your home, owning properties in other countries/provinces, having the home vacant or under renovation are all added risk factors.
Takeaway: The common home insurance mistake here is not telling your broker/agent about these things. The added cost is well worth it as opposed to the risk you are taking on your own.
If you own a home or condo, insurance will be required by your mortgage company in order to protect their investment. But renters are a different story. Believe it or not: A high percentage, perhaps the majority of renters, do not have tenant insurance.
Usually landlords will require you to sign a lease and require proof of tenant insurance showing $1M liability coverage. Often tenants let this policy lapse after the first year, or even worse, never even obtain it to start.
For the price charged for this coverage, from ~$30 per month, this is completely a mistake not to have it. The benefits are covering you for liability arising out of slips or falls on the property, coverage for all of your clothing, furniture and electronics. Plus, you’re also building track record of no claims. Think of it like a credit score you’re building. It comes in handy eventually when you move on to a condo or a house and get bigger discounts for having no claims.
Takeaway: Many overlook Tenant Insurance, but the benefits of having tenant insurance outweigh the cost of the monthly payment! Get a tenant insurance quote here from us.
Home Insurance is often more complicated than car insurance. Avoid these common home insurance mistakes that could cost you and enjoy the benefits of protecting your assets with peace of mind. If you don’t know what to do you should, ask a professional. Like us! Give us a call at 1 (844) 774-6340. We can help you out. Or get a quick quote:
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