Types of Home Insurance Policies You Can Buy and What They Cover

There are several types of insurance polices you can purchase. Please remember that the wording and what is covered may vary within these general categories from one insurance company to another. Trade names may also be used.

Comprehensive

This is the most inclusive home insurance policy; it covers both the building and its contents for all risks, except for those specifically excluded. There are two types of insurance risks that are not normally included in any home insurance policy – those for which you can buy insurance (“optional coverage”) and those for which insurance is not available (“uninsurable peril").

Basic/Named Perils

If you are looking to save money by carrying the financial risk of some losses yourself, you may wish to consider a named perils policy that covers only those perils that are specifically stated in the policy.

Broad

If the comprehensive policy costs more than you want to pay and the named perils policy seems too risky, a mid-priced compromise is the broad insurance policy. This policy provides comprehensive coverage on the big-ticket items like the building and named perils coverage on the contents.

No Frills

Some insurers offer very basic or “No Frills” coverage for properties that don’t meet their normal standards. If there are physical problems with your home that keep it from meeting insurers' standards, you may save money in the long run by correcting these problems in order to qualify for better coverage.

How Home Insurance Premiums are Calculated

Like all insurance premiums, how much you pay for home insurance depends on a number of factors related to risk. Insurers analyze these risks, and figure out how likely it is that you – or a group of people with the same set of circumstances – will make a claim, and how much that claim will cost.

These factors typically affect what you pay for home insurance:

• Where you live: Insurers keep records about such things as the number, type and cost of claims by neighbourhood. They can tell from past experience what the circumstances are in your neighbourhood, and how likely it is that you will have to make a claim. For example, if you live in an area where most people commute to work and homes are left unoccupied during the day, the statistics may show your neighbourhood has more break-ins. The cost of home insurance, therefore, varies from neighbourhood to neighbourhood, from city to countryside, and is based on knowledge and experience.
• Proximity to water: Insurers are concerned about fire, and will look at how far your home is from a source of water (e.g., fire hydrant, fire station) If you live in an urban area, this is generally not a problem. If you live in the country and the distance is great, however, this will influence the cost of your home insurance. The sooner a fire can be put out, the lower the cost of restoring your home.
• Replacement cost: The factor that will make the biggest difference in the cost of your home insurance is simply the size and composition of your house – as well as your contents. The larger the house and the more contents you have, the more it will cost to replace. In addition to the square footage, insurers will take into account such things as the quality of construction used to build your original house, as that can vary greatly from home to home.
• Heating: Because oil tanks have the potential for causing costly environmental hazards, your insurance representative will ask you lots of questions about the age and condition of your tank. There is far less risk with forced-air gas furnaces or electric heat, so you may pay more for your home insurance if your home is heated by oil.
• Electricity: There are several factors concerning electricity. Do you have breakers or fuses? What is the flow of electricity coming into your house, i.e., the "amp"? And what kind of wiring do you have? Insurers know from experience that breakers pose less risk than fuses, and that a minimum of 100-amp service is better than a lower level of service, as a lower amp can lead to overloading and fire. They also know that some older types of wiring, such as knob-and-tube or aluminum, can increase the chance of fire, especially if the wiring has deteriorated or been damaged during renovations. Some insurance companies may ask for a guarantee that a home does not have this kind of wiring; some may give you time to have it removed; while others may ask to inspect the condition of the wiring to ensure it’s safe.
• Pipes: Galvanized or lead piping usually means that the plumbing is older, and older plumbing is more likely to crack, leak or run into other problems. Insurance companies generally prefer homes where the plumbing has been upgraded to copper or plastic.
• Wood stoves: These are a common source of house fires and carbon-monoxide poisoning, particularly if they are not properly installed and maintained. Insurance companies may want to inspect such installations. Consult your insurance representative before buying or renting a home with a wood-burning stove, or before installing one.
• Age of roof: Insurers generally prefer it if your roof has been updated within the last 20 years. Some policies will pay only depreciated values, as low as 25% of the replacement cost, for damaged roofs that are near the end of their designated service life.
• Other uses of your home: Insurers will want to know if you have built or are planning to build a rental apartment into your home; begin operating a business there; or make any other significant alterations to the structure or the way your home is used.
• Other factors: Insurers will ask if you have a security alarm and a fire alarm, and whether they are monitored by an outside service. They will also want to know if you have a swimming pool and other structures on your property, such as pool houses or storage sheds, that are worth more than 10% of the insured value of your home.
• Basic or full coverage: Once all of the above is taken into consideration, you get to choose the types of coverage you’d like – which will also influence the cost you pay. While there are government regulations dictating how much insurance drivers must have, there are no such laws when it comes to home insurance. The only requirement may be one set by your bank or mortgage holder. From there, it’s up to you to decide whether you prefer basic or more comprehensive coverage. And this is something your independent insurance representative can help you with.

These factors typically DO NOT affect what you pay for home insurance:

• Gas vs. electric appliances: The types of appliances in your home do not affect the cost of your home insurance.
• Brick exterior vs. aluminum siding: Most insurance companies do not use type of construction as a rating factor when calculating home insurance premiums. However, construction type is used when calculating the building replacement cost (i.e., what it would cost to rebuild the dwelling with materials of like kind and quality, if it were destroyed). See above for how the building replacement cost may affect your premiums.

Home Insurance

Buying a home is probably the largest single financial investment you have ever made. For most people, their home is their life savings tied up in bricks and mortar – bricks and mortar that, no matter how well built, are vulnerable to fire, theft and other disasters.

Could you possibly afford to replace absolutely everything you own? Recovering from even a partial loss, like having your home broken into and many possessions stolen, would cost more than most people could manage on their own. Home insurance protects you from having to pay out a huge amount at once, often at the very worst time emotionally.

Tenant Insurance

Tenants need insurance too. If you don't have insurance, you would be held responsible if your actions (e.g., leaving the bathtub running) caused damage to:

• your apartment
• your neighbours' apartment(s)
• the apartment building itself

Even if the landlord's or your neighbours' insurance covered the damage claims, their insurance companies would come to you to recover costs for repairs and/or replacement of:

• the structure of the building
• your neighbours' damaged property

Tenant insurance protects you from having to cover these costs out of your own pocket. For more information on tenant insurance, .

If you are like most people, you will probably never need to submit an insurance claim. But home or tenant insurance is peace of mind that you really shouldn't live without.