A Primer on Home Insurance

      Insurance is a complicated and often times confusing subject for the homeowner. There are several types of Home Insurance Policies.

Types of Policies
     Standard policies provide protection against a number of "Named Perils". These policies cover both the dwelling building and its contents. Named Perils could include such things as lightning, hail, windstorm, specific types of water damage, theft. Broad form policies provide protection on an "All Risks".  They cover the dwelling building, but on a Named Perils only on the contents.
     All Risks policies provide protection against anything that can cause you loss or damage, unless the policy specifically excludes that cause of damage.  Exclusions on an All Risks policy could include the cost of making good faulty workmanship (e.g., if your roof shingling was not properly installed and water leaked into your house, while the All Risks policy could pay for some of the water damage. You should have the conversation with your insurance company to identify how your particular policy covers such items.
     An All Risks policy would almost certainly provide protection against the simple loss of a personal belonging, whereas a Named Perils policy would provide protection only if that same belonging were stolen. In some types of Named Perils policies, that protection for losses by theft could be restricted to loss by burglary. This requires the theft to have been the result of a visible break-in to the premises.
     All Risks policies provide better protection than Named Perils policies, but they are more expensive.
     Comprehensive policies provide protection on an All Risks basis on both the dwelling building and the contents.
     When you are purchasing Home Insurance, be sure you are comparing apples with apples when evaluating one company's Homeowner products against another's.

Exclusions
     Every Homeowner policy has exclusions and dollar limitations, depending on the insurance company. One company might have a dollar limit on the theft of bicycles, while another may have none. Discuss the various dollar limits and exclusions on your policy with your insurance provider

Replacement Costs
     Should your home be damaged or destroyed, settlement on the building may be on a Guaranteed Replacement Cost basis. Guaranteed Replacement Cost coverage on the building is a feature that guarantees that, as long as the dwelling was properly insured initially, should it cost more to rebuild it than the policy coverage provides, the insurance company will provide protection over and above the amount insured on the policy. This is usually subject to certain conditions, such as proper insurance in the beginning and certain maximum percentages of increased costs; the policy would pay for the increased rebuilding costs. The details vary by insurance company, so check with your insurer or broker as to how your insurance company's Guaranteed Replacement Cost feature would work.
     Note:  No policy (even with a Guaranteed Replacement Cost feature) will pay any additional costs to conform to new building codes (e.g., if a frame dwelling has to be replaced with a brick one). You normally have to buy special coverage for this.

Insurance Terminology
    Understanding Insurance Terminology will help take the confusion out of insurance policies and dealing with a broker or insurance company.

Here are a number of key definitions:
Claim –      A request for payment by an insurer of a loss covered by a policy. Claims to your own insurance company are called "first-party claims"; claims made by one person against another person's company are known as "third-party claims."
Deductible –    The portion of the loss that you agree to pay out of your own pocket, before the insurance company pays the amount that it is obligated to cover. The deductible is subtracted from the total amount paid by your insurer. Therefore, if your claim is for $2,000 and your deductible is $500, you will pay $500 and the insurer will pay $1,500.
Exclusion –      Specific conditions or circumstances listed in the policy that are not covered by the policy. For example, damage caused by rodents is excluded from your homeowner’s policy, meaning it is not covered and the insurer will not pay if a squirrel wreaks havoc in your house.
Liability –        A legally enforceable financial obligation. Liability insurance pays the losses of other people when you are legally responsible for an accident in which you have injured another person or damaged that individual's property.
Occurrence – An accident that results in bodily injury or property damage during the period of an insurance policy.  
Peril –              The cause of loss or damage. Your homeowner’s policy, for example, insures you against perils like windstorms, fire, and theft, among others.
Personal-lines insurance – Insurance (like homeowners or automobile) for individuals, as opposed to commercial-lines insurance, for businesses.
Policy –            The legal document issued by the insurance company that outlines the terms and conditions of the insurance.
Policyholder – The person who buys the insurance; also called the "insured."
Premium –       The payment required to keep your insurance policy in force.
Risk –              The chance of a loss. You insure your house, for example, against the risk of fire.
Underwriting – The process of selecting risks for insurance, and determining how much to charge to insure these risks and which coverage to provide.

Homeowners' Insurance checkup
What is covered: Have you made any additions or improvements to your house that will need to be added to the policy? If you have, inform your agent in writing and send photographs to validate the improvements.

What is the coverage level: Has the value of your house risen in the last year? If you do not have a rider that automatically raises your coverage on an annual basis, you will need to adjust your level of coverage to match the increase in property value.

Guaranteed replacement cost: Does your policy stipulate that you will be paid a guaranteed replacement cost or is there a limit to your coverage. Review this with your agent.

Liability Insurance: What are the limits of your coverage in a situation where someone may be injured in your home?

Content Insurance: Have you added any expensive items (computers are a prime example) that need to be added to your policy?

How to maximize your coverage and minimize your premium cost
    The following are a number of methods that you can use to potentially lower your annual premium for your Homeowners' Insurance. Consult your agent to see which apply and how much you can save. In addition, most will add to the safety and security of your house.

Dead bolts: Install dead bolts on all exterior doors.
Security alarm: Install a security alarm
Smoke detectors: Have smoke detectors on all living levels.
Fire extinguishers: Have operational fire extinguishers available in the house.
Consider a higher deductible: If you are comfortable with the possibility of having to pay a bit more out of pocket in case of a loss, raising the deductible (the amount you will pay when there is a claim) will lower your annual premium.
Multiple policy discounts: Have your homeowners' policy and auto policy with same insurer: Many insurers will give you a discount if you maintain both policies with them.

HOMEOWNERS INSURANCE CHECKLIST
Top 10 questions to ask your insurance provider BEFORE you purchase or renew your insurance:

  1. What kind of homeowner’s policy do I have, and who/what is covered under it?
  2. How much am I covered for in each area?
  3. How do I know if I am adequately insured?
  4. Is there a deductible? How much?
  5. What is NOT covered in my homeowner’s policy? (What are the "exclusions"?)
  6. Do I have replacement cost? Guaranteed replacement cost?
  7. What are the limitations on valuables, like jewellery, silverware, and computers?
  8. What does my policy cover me for in terms of water damage?
  9. What optional coverages should I consider?
  10.  What is my deductible? How much money can I save on my premium by choosing a higher deductible?
  11. What safety features can I install that will help me save money and increase my protection?
  12. Does the company offer 24-hour claims service?