What is an uninsurable peril?

Across Canada homeowners and renters are facing what, for much of the country, would have seemed unfathomable just a few years ago. Fires in Nova Scotia, British Columbia, Northwest Territories, and Alberta have brought with them death and destruction.  

As residents rebuild, insurance policies will play a key part of the picture. Some of these costs are generally insurable and some—so-called “uninsurable perils”—are less likely to be covered during various disasters.  
 
In this article, we’ll be looking at what uninsurable perils are, how you can protect yourself against them, and what other options are available should the radically unexpected become your reality. 

What is an uninsurable peril? 

An uninsurable peril is a risk that your insurance company refuses to cover by default. Some examples include:  

• Flooding damage 

• Landslides and earthquakes 

• Freezing damage from indoor plumbing 

• Damage from vermin like bugs and rodents 

• Pollution 

• Illegal activities or damage done in a house obtained illegally 

• Damage from war or terrorism 

It makes logical sense for a stolen house or off-the-books marijuana growing operation not to be insured. The same could be said about damage from rodent infestation or freeze damage, which could both have been preventable. But what about those events that are quite simply out of your control?  

Some of these areas of insurance are huge risks, a 2022 report by the Government of Canada put the average annual loss related to flood damage at $2.97 billion nationwide and there are ongoing discussions in the insurance industry about how climate change will affect the market in the coming year.  

However, just like most things concerning finances and insurance, it’s not as black and white as it may seem. An uninsurable event, like an earthquake, might not be covered in and of itself — but if that earthquake results in a housefire, fire damage is typically covered by standard home and tenant insurance policies.   
 
But what happens if you do find yourself knee deep in water unexpectedly or suddenly sharing your home with a family of rodents? 

Related: Should you notify your home insurance company if you fix the damage yourself? 

Types of insurance coverages 

When considering what uninsurable perils you might be forced to wrangle as a renter or an owner, it’s important to know what types of insurance you can take out to protect yourself.  

Those categories are comprehensive, basic (or named perils), and broad coverage.  

A comprehensive coverage is kind of like a full-service experience at a resort. Only the extras—swap drinks and excursions for flood and sewer coverage—will be excluded unless you pay for them.  

Basic coverage, in this analogy is à la carte: You only get what you specifically ask for, known as named perils in the insurance industry. 

Broad coverage is a combination of the above — some coverage is included, but other risks needing to be added on. Under a broad coverage policy, the structure of your home is covered as long as the damage was caused by something you had zero control over, but what’s in your house is only covered depending on what perils you name.  

Where you live can also play a role in what perils you can protect against. For example, overland flood insurance may be limited if you have bought a house on a flood plain. There are efforts being made, such as the federal government announcing funding for the implementation of a national flood insurance scheme that could see these concerns mitigated.  

Forms of additional endorsements

Other examples of optional coverage, sometimes called additional endorsements, can include:  

• Sewer backup 

• Glass breakage (in order to reduce your deductible) 

• Damage and losses from an earthquake 

• Special belongings coverage (for high-priced personal items like rare jewellery) 

• Additional identify theft coverage 

Even with comprehensive coverage, policy holders should make sure they know the limits or expectations of their plan, including how often a home should be checked for cold damage if it is left unoccupied.  

Read more: Three home insurance endorsements to consider based on where you live 

The worst-case scenario 

Imagine you’ve done your best, you’ve read your policy cover to cover, you’ve worked with a reputable broker, you’ve reduced your risks by taking all necessary care and precautions to your property — and yet you still find yourself at the hands of fate.  

Should you face an uninsured peril, like a flood, it’s important to know that your municipal, provincial and the federal government have failsafe options if the unimaginable happens. Alberta has a program called the Disaster Recovery Program to provide aide in the event of a disaster that results in uninsurable loss. In Saskatchewan, it’s called the Provincial Disaster Assistance Program, and in Nova Scotia it’s the Disaster Financial Assistance Program. Residents of Ontario can also apply for Disaster Recovery Assistance for Ontarians.  

The requirements set out by each of Canada’s provinces and territories are different, but it’s key to make sure you know your options, should Mother Nature—or another form of unexpected disaster—come knocking at your door.  

Read next: 30% of Canadian homeowners unaware they must pay extra for flood and earthquake insurance