Understanding the Basics of Home Insurance
Posted by Justin Havre on Friday, October 5th, 2018 at 3:25pm.
Buying a home is a large, long-term investment that deserves protection. Home insurance has many benefits and limitations, and can be somewhat difficult for people to understand. With the answers to these questions, buyers will have a better idea of what to expect when they go shopping for home insurance.
What Does Home Insurance Cover?
People who have homeowners insurance need to know what is typically covered by their policies, and how those aspects of the home are covered. Typically, a policy will provide for compensation based on actual cash value or replacement value of an item that is stolen or destroyed due to a covered event. Actual cash value takes into consideration the natural depreciation of possessions like furniture or technology, and does not compensate for the total cost of the items. Replacement value ensures payment based on the amount of money it would take to replace the item. Coverage for possessions in the home often requires documentation of the belonging's purchase. Insurers may vary the coverage based on the type of possession, and the policy that the person holds.
Are There Different Types of Homeowners Insurance?
Home insurance is not legally required for homeowners, but experts recommend it as a layer of financial protection against the unexpected. The coverage offered in a particular policy may be different from one insurer to the next, and there are unique coverage types:
- Basic or Named Perils
- No Frills
- Personal Liability
Many homeowners choose a comprehensive policy, which is designed to insure against most loss or damage to the building and its contents. A basic or named perils policy offers basic coverage only for named perils, such as vandalism or fire. Broad policies cover the building, and also protect the contents against named perils. No frills policies are often given for properties that cannot qualify for other policy types. Personal liability coverage addresses injury or property damage that happens to people who are not residents of the property.
What Is Not Covered By Home Insurance?
Even the most comprehensive insurance policy may exclude coverage for certain property or events. These are commonly referred to as Uninsurable Perils, and may include damage to property obtained illegally, loss or damage resulting from the policyholder's criminal acts, or damage that happens during war or terrorism. Additionally, even the best homeowners insurance policies typically do not cover certain events, such as flooding or earthquakes. Homeowners who live in areas where earthquakes, floods, or sewer backups are common should ask their insurers about adding extra coverage to their policies for these specific concerns.
How to Keep Your Insurance Premiums Low
Many people in Calgary these days are looking for ways to reduce their monthly expenses. While canceling your home, auto and even life insurance isn't really a prudent option, there are ways to reduce the amount of monthly premium payments. Your insurance payments aren't really fixed costs—there's always some flexibility and in consultation with your insurance company you should be able to bring them down somewhat. Take a look at this article to see how life insurance impacts your taxes.
Increase Your Deductible
It might drive you crazy that you even have to pay a deductible in the event of a claim, but in the interest of lowering your monthly payment you might like to gamble. It's a short term solution.
Are you Eligible For Other Discounts?
There are discounts offered by your insurance provider that can be overlooked, often due to lack of communication. When it comes to your home, if you've paid off your mortgage, recently replaced your roof or installed an alarm system, you may be eligible for some discounts.
How's Your Credit?
When your annual insurance premium is spread out over monthly payments, your insurance company consults with the credit bureau to see what kind of a risk you are. There is also an equation that insurance providers use to figure out how likely you are to make a claim based on your credit score. This is based on historical evidence. So you might not see a correlation but your insurance provider does. If you have a good credit, your insurance premium will likely be lower than if you don't.
Annual Lumps Sum or Monthly Payments
It's easier to swallow 12 small payments rather than one large one but you're probably paying a finance charge or service fee for this convenience. The monthly service fee is often a percentage of the premium or sometimes it's just a flat rate.
Are you a Good Customer?
Just like your mobile phone provider that offers incentives for customer loyalty, your insurance provider can look at discounts or special rates based on the length of time you've been a customer. Conversely, if this isn't an option, you might look to see if another provider offers special pricing for new clients.
Bundling Really is a Thing
There are quite a few humourous television commercials now that talk about the benefits of bundling and it's true. No doubt your current insurance company offers this—after all, they want all of your insurance, not just your home or not just your auto insurance. Ask about this type of reward. All you need to do is pick up the phone.
How Do Homeowners Ensure Adequate Coverage?
Since policies can be customized in nearly infinite ways based on the regional conventions, insurers' guidelines, and homeowner needs, people must carefully read and understand the details and limits of their own coverage well in advance of needing to file a claim. Insurance experts strongly suggest creating and maintaining a personal property inventory, with an estimate of the replacement value of the structure and notable items throughout the home and property. This will help homeowners to settle on the kind of coverage that is most appropriate for them, and to be better prepared in the event of a disaster.
Buying a North West Calgary home can feel like a more secure decision when buyers know that their investment will be protected against catastrophe. By knowing the specifics of their home insurance policies, homeowners can avoid stress in the event that they ever need to use the insurance to repair or replace items in their homes.