A guide to buying home insurance in Ontario

What Is Home Insurance and Why Do You Need It?

Home insurance is an insurance policy designed to protect you, your family, and your home; it falls under the broader umbrella of property and casualty insurance (P&C insurance.) There are three basic reasons why you need home insurance: To cover damage to your home and belongings, as well as expenses related to that damage, to cover yourself in the event of liability claims, and to help secure a mortgage.

To Cover Emergencies

Emergencies happen. Pipes burst, causing serious water damage. Hailstorms break windows. Vandals and burglars break into people’s homes. Fires cause devastating loss.

Your home insurance policy may cover each and every one of these emergencies. The point of home insurance is to protect your investment in your home. When a hazard that’s covered under your home insurance (sometimes known as a risk) causes damage, your home insurance policy can pay out, giving you access to the funds you need to repair, replace, and rebuild.

Home insurance can even cover additional living expenses that you might incur while waiting for your home to be repaired or rebuilt. No homeowner should go without it—it’s protection that gives you and your family peace of mind.

It Protects More Than Just Your Home

Your home may be your most valuable asset, but you have a lot of personal property, too—and the value of that property adds up. Most of us have tens of thousands—or even hundreds of thousands—of dollars worth of personal property. Computers, televisions, clothes, appliances, electronics, furniture, and more—and it can all be covered by your home insurance policy.

Fences, sheds, and other buildings on your property are also likely covered by your home insurance—they have a different coverage limit than your home, which gives you a higher total coverage limit.

Home Insurance Is Required to Secure a Mortgage

Home insurance isn’t legally required in Ontario (though we highly recommend purchasing it). Almost all lenders will require home insurance if you want to secure a mortgage from them, however—and you don’t want to get a mortgage from a lender who doesn’t require insurance.

An institution that lends you money for your mortgage has a vested financial interest in your home; your home is, effectively, collateral against the loan they give you. Generally, these lenders will require you to insure your home for at least its total replacement value—that is, what it would cost to fully replace your home in the event of a catastrophic, unsalvageable loss.

How Home Insurance Works

Home insurance policies can be broken down into a number of parts:

• The coverage: What’s covered, coverage limits, what events the policy pays out for, and more
• The exclusions: What isn’t covered and why
• The premiums: How much you pay each month
• The deductible: An amount that needs to be reached before the coverage pays out (for example, with a $1000 deductible, your policy won’t pay out the first $1000 of a claim)
  Adjusting any one of these features can affect the other. A higher deductible can mean lower premiums. Higher coverage limits can mean higher premiums. Your home insurance policy should strike a balance between great coverage, an affordable premium, and a reasonable deductible.

Each month, you’ll pay your premiums—though some people opt to pay their premiums on a yearly basis. Should damage be caused by a hazard that’s covered in the policy, you can make an insurance claim—the same applies to events that could be covered by the personal liability insurance included in your home insurance policy.

Your home, detached structures like fences and sheds, personal property, and your liability coverage all have separate limits—hitting the limit on one during a claim doesn’t affect the others.

What Exactly Does Home Insurance Cover?

Home insurance covers your home, your personal property, the personal property of your spouse and dependants, and liability claims made against your spouse and dependants.

Each item on your home insurance policy will have a coverage limit—an amount that represents the maximum your policy will pay out for a claim. For most policies, the coverage limit on your home is the total replacement value—the cost to rebuild your home.

Personal property will have a different coverage limit, and some personal items have their own special coverage limits. This is usually the case for valuable personal property like art, jewellery, antiques, and collectibles.

Your personal liability coverage will have its own coverage limits, too.

Your home and personal property coverage can pay out when a hazard or risk that’s covered causes damage. Hazards and risks are events like fires, storms, and floods that cause damage. There are three general classes of home insurance, each of which covers different risks:

• Basic Coverage (Named Perils): These policies are required to cover some risks (like fire)—but they’ll only cover the risks that you name. We almost never recommend choosing basic coverage.
• Broad Coverage: Covers your home for a wide variety of hazards but only covers contents for named perils.
• Comprehensive Coverage: Covers all damage and theft that isn’t specifically excluded by the policy.

Comprehensive coverage is the best—it’s what we recommend and what most Canadians purchase.

Giving you a detailed list of exactly which hazards and risks your home insurance policy covers is impossible—each policy is different and features its own exclusions and exceptions. You should talk to your insurance broker about what your home insurance policy covers—they’ll give you more specific details.

What Home Insurance Doesn’t Cover

Different insurance companies have distinct home insurance policies, and what isn’t covered varies significantly between them. With basic and broad coverage, anything that isn’t named or is excluded isn’t covered—with comprehensive coverage, anything that’s specifically excluded isn’t covered.

We recommend talking to a broker about your home insurance coverage. They’ll be able to go over any exclusions with you and explain your policy limits. Generally, earthquakes and floods aren’t covered unless you specifically ask your insurance company to add coverage for these perils to your insurance policy.

Home insurance policies are highly customizable—you can add riders (adjustments to your policy) for a whole bunch of different coverages.

There are some events and items that are not covered by your home insurance policy. Any damage intentionally caused by you, your family, or someone working on your behalf will not be covered—that’s insurance fraud.

Your insurance also won’t cover your vehicle, and it may not cover equipment you use for work. There are specific insurance policies designed for those things. You’ll also need to buy home insurance for any new house you purchase.

Calculating the Value Of Your Belongings

To get the most out of your policy, you’ll want to calculate the cost of your personal property—that way, you’ll have enough coverage for all of it. You’ll also need to know the value of your home—but that’s a lot easier to calculate, so we didn’t feel the need to dedicate a whole section of this guide to it.

Calculating the value of your belongings is a lot of work—but it makes filing a home insurance claim a lot easier. Take a picture of every item of value you own. Inventory them using spreadsheets: Have a spreadsheet for electronics, appliances, furniture, clothing, and more. Each item should have a picture, a name, and a price tag attached to it.

For insurance purposes, there are two ways of calculating the value of personal property: Replacement cost, which is the cost to replace an item with the same (or a similar) new item, and actual cash value, which is the value of the item now, minus appreciation or depreciation. You’ll rarely want a policy to use actual cash value unless you have antiques or other valuables that have increased in value over time.

How Much Coverage Is Needed?

We recommend enough coverage to cover the replacement cost of your home and all of your belongings. The insurance company providing your coverage or your insurance broker will help you estimate the replacement cost of your home—the cost may be lower than you paid for your home because it accounts for replacing the building, not the land.

The best way to ensure you have enough insurance is to ask for guaranteed replacement cost coverage—this will cover you even if the replacement cost of your home exceeds the replacement cost estimated by your insurer.

The Cost of Home Insurance in Ontario

Home insurance in Ontario is about $1400 a year on average—incredibly affordable, considering how much coverage is being provided. As we’ll explore in a later section, many factors affect the cost of home insurance.

Types of Home Insurance Policies and Coverages

We’ve discussed basic, broad, and comprehensive coverage, and we’ve talked about the separate limits for your home (known as the dwelling building), detached structures, personal property, and liability.

As a reminder, we recommend comprehensive coverage, opting for the guaranteed replacement value of your home as a coverage limit and carefully calculating the replacement value of all of your personal property. We also recommend talking to your insurance broker about what exclusions exist on each policy and how you can get riders to extend coverage.

With that all in mind, let’s delve a bit deeper into three important coverage categories: Personal property coverage, liability coverage, and additional living expenses.

Personal Property Coverage

Your personal property coverage extends beyond your home—items that you have on your person or in another location can also be covered by your home insurance policy. This coverage also extends to your spouse and any dependants living in your home.

The important thing to know here is that some items have their own policy limits—and many people will want to increase the amount of coverage for these items. You might have a valuable watch or some jewellery that’s been passed down to you. These items will have their own limits—though all classes of items, like jewellery, will be grouped together for coverage.

Liability Coverage

Liability coverage protects you if you, your spouse, or your dependant causes damage to someone else’s property or hurts someone. Did your kid throw a baseball through someone’s window? Liability coverage may step in to cover costs or legal fees.

There are some exceptions when it comes to liability coverage—many policies don’t cover injuries caused by your pets. You should read over your liability coverage carefully.

Additional Living Expenses

Additional living expenses cover expenses you may incur if you cannot live in your home due to a covered peril. Your insurance may step in to cover lodgings (like a hotel), transportation, food, and other costs while you’re away from home.

How to Buy Home Insurance in Ontario

While it’s possible to buy a home insurance policy directly from the insurance companies, we highly recommend going through an insurance broker.

Insurance brokers will go through all of the policies offered by different home insurance companies on your behalf, then choose the policies with the best rates and coverage for your needs. Insurance brokers have a fiduciary responsibility to you—a fancy way of saying that they have a legal obligation to find the best policies they can for your financial situation.

By going through an insurance broker instead of looking at the policies offered by each home insurance company yourself, you’ll save time and money.

Ways You Can Save on Home Insurance in Ontario

There are several ways you can save on home insurance in Ontario, including:

• Buying your insurance through an insurance broker
• Bundling your home insurance with your car insurance
• Installing safety measures like fire alarms, burglar alarms, and automatic water shut-off
• Shopping around when your policy term is over

• Allowing your insurance company to do a soft credit check

Factors That Determine the Cost of Home Insurance

The level of coverage you get, how large your deductible is, the age and condition of your home, and the area you live in all affect your home insurance premiums.

Other factors, like your claims history, your age, and whether or not you’ve paid off your mortgage can also affect the cost of home insurance.

Looking For Home Insurance in Ontario? Contact Westland Insurance Today