Homeowners Insurance: What You Need and Why You Need It
One of the last steps of buying your new home is getting the homeowners’ insurance coverage you need. Banks require you to hold insurance, but even if they didn’t, it’s simply a good idea. You want to be able to protect your investment, should anything happen to it.
Understanding the ins-and-outs of homeowners’ insurance can be stressful for new homeowners, so we’ve created this little guide to help you figure it out. Of course, if you have any questions, you should always ask your insurance provider.
The cost of homeowners’ insurance varies, but you should expect to pay about $35-50 per $100,000 per month, with the average in Edmonton being around $67 per month. In most cases, you have to pay for your first year upfront and bring proof of this payment and coverage with you on the day you close on your mortgage. After that, the bank will collect 1/12 of the annual premium along with your monthly mortgage payment. When the bill comes due each year, the bank makes the payment for you.
Check with your bank about the requirements for your insurance. Typically, the bank will require you to have at least enough insurance to cover the market value of the home. Note that this is primarily to protect their interests, not yours. It may not fully replace your home in a case where it’s completely destroyed.
Market Value vs. Replacement Costs
Think carefully before you choose to get only the bare minimum amount of coverage. It’s usually smarter to purchase insurance that covers the full cost of replacement. What exactly is the difference? Well, in some cases, the home’s market value might only be something like $300,000. However, if the home needed to be completely rebuilt, the cost of the materials and labour for this might equal $350,000. If you only have coverage for the market value, you’ll have to spend $50,000 out of your own pocket to rebuild the home – or you may need to create a smaller home to keep the cost within the budget of the money you receive from the insurance company. Most people would prefer to replace their home with something similar to what they have.
Fortunately, you won’t have to carefully calculate the cost of the replacement. Insurance companies have programs that automatically do this. However, you do need to be careful about telling them everything that your home contains. For instance, if you have granite countertops, the insurance company should know this so that they’ll factor in the cost of replacing granite countertops rather than using cheaper laminate.
Like we’ve mentioned before, homeowners’ insurance should cover the cost of replacing your home if it was completely lost in a fire. It also covers repairs caused by accidental damage, such as a tree branch falling on the roof. Most of the items in your house are protected as well. If your home is robbed, the insurance should replace the belongings that were stolen. Finally, homeowners’ insurance usually covers the medical costs when someone is injured on your property.
What’s Not Covered
The insurance policy will cover damages caused by accidents, but it might not cover damage caused by negligence such as a slow leak in a pipe. Often, insurance does not cover damage caused by high-risk events if you’re in a high-risk area. For instance, a basic plan wouldn’t cover the damage caused by tornadoes if you live in an area with frequent tornadoes.
Additionally, most insurance policies do not cover house materials or belongings that are outside of the norm. If your home has custom stained glass windows, for instance, the insurance policy must stipulate that a replacement home will include those custom stained glass windows. Otherwise, they’ll replace them with standard windows. Likewise, policies don’t typically cover the replacement of fine jewellery or fine art collections.
If you want to be fully covered, you may need to purchase additional “riders”. These are policies that go above and beyond the traditional policy to cover the unique situations mentioned above.
In some cases, the insurance company requires you to purchase the rider. Those in a flood zone, for example, will need to purchase a rider that covers damages from flooding.
You’re required to purchase homeowners’ insurance, but you can choose the company that you purchase your policy from. Don’t be afraid to shop around for a policy that meets your needs because you’ll find that prices can vary wildly. As long as you purchase from a reputable company, you will have no trouble at all.