4 Considerations for choosing a home insurance policy

In theory, home insurance is a pretty simple concept. You pay an insurance company for coverage, and you’re protected in case the unthinkable happens.

Reality is much more difficult. Sure, the theory persists. But in today’s world where dozens of Canadian insurers compete for your business, many details get lost in the fine print. The last thing a homeowner wants is to get a nasty surprise when making a claim.

Here are four things you need to make sure of before settling on a home insurance policy:

Floods

Scientists tend to agree that global climate change results in more frequent storms. We mostly avoid hurricanes up here in Canada, but we still get plenty of tornadoes and floods.

Flood insurance is complicated, but in general it works like this: floods caused by any external sources—like rivers or lakes—aren’t usually included on a policy. Most insurers offer the option to purchase additional coverage for an extra fee, which varies depending on how close your home is to water.

What is covered in your home insurance policy are things like sewer backups and burst pipes, provided the insurance company can’t prove it’s your fault. If you turn the heat off in the winter and a pipe bursts, an insurance payout probably isn’t coming.

Make sure you verify the flood coverage (or lack thereof) before getting a policy, especially if you live near a body of water.

Deductible

Every time you make an insurance claim, the insurer makes you pay a portion of the cost involved. This is to discourage a large amount of claims for minor things.

The standard home insurance deductible in Canada is usually $500 or $1,000. People looking to save money often raise the deductible to $2,500, which locks them into only making claims for big things. A broken window or a downed tree can probably be repaired for less than $2,500, so the logical move is for that homeowner to take care of the problem themselves.

There’s no one right answer about your deductible. Just be aware of the tradeoff between premium price and deductible when getting a policy.

Alarm system

There’s an easy way to save $100-$200 annually on your home insurance. All you need is a monitored alarm system.

The only problem? You’ll likely pay anywhere from $40 to $80 per month for this system. Paying $500 per year for an alarm system to save $200 per year in insurance premiums isn’t a smart idea.

Also, be aware that different home insurers value alarm systems in different ways. If you have an alarm system, make sure you find an insurer that really values it. Of course, if an alarm system will help you sleep better at night, the cost may not matter to you.

Basic or comprehensive home insurance coverage?

If you’re willing to pay the price, you can purchase a fancy comprehensive policy that covers everything from the new value of your contents to putting you up in a hotel in case something happens. Or, you can just go basic, getting protection for fire and not much else.

When getting a home insurance quote, make sure you know whether a policy is basic or comprehensive. A basic package might be good for a bachelor without many things, but families should consider getting insurance that covers more.

The issue is when a family thinks they’re getting a comprehensive package for a basic price. Before accepting a policy, make sure you know what it covers.