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What Is Homeowners Insurance & What Does It Cover?

You would have heard a lot that buying a house is like fulfilling your dreams. But along with buying a house, it is important that you protect your house as well. There are situations like a fire or natural disaster that can affect your family by destroying your home. That is why you must buy homeowners insurance. It protects you financially in case anything occurs to your house. 

Homeowners Insurance in Canada

Imagine working really hard day and night and saving up enough to pay for a down payment and when you finally buy a house a tragedy occurs and you lose your belongings or in the worst case scenario, your house. That is where homeowners insurance can come to your rescue. It is a protection that in case you lose your house, the amount of the financial loss will be covered under the insurance. In some cases, even landlords need their tenets to apply for rental insurance. 

Different types of homeowners insurance cover different things. Some cover the entire cost of the house while some may only cover the belongings. It is necessary that you understand the insurance you’re buying and make a decision that is going to help you in the future. I have listed a few types of homeowners insurance below.

Covers Replacement Charges

This type of insurance covers the actual value of your house and the belongings excluding any depreciation cost. In short, this is the replacement cost that you would have to pay if you want to buy the same house and belongings again without putting anything out of your pocket.

The Actual Value of the House 

This type of insurance covers the entire house cost in addition to any possessions that you have in the house after deducting the depreciation. This is the actual amount that you will receive would be less than what you paid initially.

Extended Replacement Policy

This policy works the best as it accounts for the inflation hike in the house policy. Simplifying it, suppose you bought a house at $100,000, with time you also purchased household items worth $5000 but as the prices are soaring and inflation is hiking, the belongings now account for $6000. Other policies could only cover $150,000 after depreciation. But this policy will give you an additional $1000 to replace the cost.

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What Particulars are Covered under Homeowners Insurance?

It is a debatable topic that what comes under the policy and what things are excluded. Before we talk about what is excluded let’s talk about what is included in the policy.

1. Any Damage Occurred to the Interior or Exterior of Your Home 

Natural disasters like hurricanes, fires, thunderstorms, etc. can create a disaster and can cause harm to the outer part of the house as well as to the interior. This is covered under the insurance policy. No destruction created due to earthquakes, floods, or because of your poor maintenance skills will not be included in the policy. But you can always get a separate addition for these particulars. 

You can get a cover for appliances, clothes, furniture, or any other item in case they get destroyed in any disaster. You can also claim for your lost jewelry or precious items if you have purchased such insurance cover. Most of the policies will cover around 50% to 70% of the insurance amount on your house. Based on the items that you have in your house, you can make a customized insurance policy that can cover those belongings. But yes, you will have to pay a little extra for the same.

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2. Coverage on Personal Liabilities for any Injury or Destruction 

This policy protects you in case of any case filed against you. This also covers details as your pet. For example, if your cat scratched some kid on the street and if any lawsuit is filed against you and you may have to pay for the medical expenses, it would be covered under this insurance. Those policies are offered for $1,000 and can be stretched as per your necessity.

3. House Rental Coverage Policy 

The policy covers the additional cost that you will have to pay for finding a good living environment or a house for the time that your home is getting rebuilt or repaired or you are living on rent and are kicked out of the house. It would cover the amount for your rent or your hotel expenses, your meals, any cost related to the waiting period while your house is getting ready or constructed. This policy also comes with a daily spending limit and a total spending limit.

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What is Excluded from the Insurance Policy?

Now we know what is included in a claim for homeowners insurance and what you can get so let’s look at what is excluded. 

The first thing is what is known as acts of God, which are the natural disasters that are excluded from the policy. Even acts of War are excluded from the policy. If you are living in a geographic location where earthquakes, tsunamis, etc. are common, it is better that you opt for a rider policy that includes these natural phenomena.

Basic Things to Consider

These are the basic things that you should know before opting for homeowners insurance. If the probability of you claiming the insurance is higher, you are considered a risky customer and in this scenario. You will have to pay higher premium rates. This can also apply if you have done such claims in the past very frequently. 

Insurance companies are in this business to make money as well. If the house you reside in has been on the record for the past three to seven years for the claim, it is considered a risky property. It can impact your insurance policy even if the house was owned by someone else in the past. In some cases, you may not be given any insurance.

The quality of the building material and the neighborhood area in addition to the crime rate play a vital role in calculating the premium rates. If the area you are living in is quite high in risk for crime, theft, etc. it eventually leads to you claiming for the insurance. As a result, you will end up paying a higher premium price.

In some cases, your cute pets can also increase the premium rate. Many times pets like dogs or cats can create harm to the belongings and will lead to Insurance claims.

Read: Rent vs. Buy a House: What’s the Difference?

How to Reduce the Cost of Opting for Homeowners Insurance? 

There are certain ways in which you can reduce the premium rates shown below.

  • Most insurance companies provide discounts when you have placed a security system that can alert the nearest police station or can blow an alarm to let the neighbors know that something is going wrong.
  • If you increase the deductible then the annual premium would also be lower. It works just like health insurance or an auto insurance policy. 
  • You can opt for the insurance policy from the same company from which you have bought other insurance. In this way, you can get an additional discount.
  • Planning and renovation can reduce the cost.
  • Paying off the mortgage loan can work in your favor because it gives you a sense of ownership in the house to the insurance company. It assures them that in that way you will maintain your house in a better way.
  • You should also do a regular check on your policy terms and conditions and compare for the better option. You can compare a policy by looking at their exclaim responses, the satisfaction of existing policyholders, and by talking to an independent third person that has opted for the same policy.

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Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She is currently pursuing CFA (Chartered Financial Analyst) and has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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