Home Insurance 101: What Is It — And How Does It Work?

Your home is likely the most valuable asset you own, but how are you protecting it? Home insurance exists specifically to protect your home from the unknown.

Home insurance is designed to cover the majority of unexpected incidents that could occur throughout homeownership — things like fires, wind damage, a tree falling on your roof.

Instead of having to pay large sums of money should something happen, your monthly premium and the claim deductible will cover your costs.

In 2020, Canadian insurers wrote $71 billion in net written premiums for cars, homes, and businesses. It’s clear the majority of Canadians with assets are buying insurance policies to protect those assets.

In this article, we’re going to dive into the world of home insurance, so you can better understand what it is, what it may cover, and more.

Do You Need Home Insurance?

Home insurance is not mandated the same way that car insurance is, which means you don’t legally need to carry a policy. However, if your home requires a mortgage, lenders will require proof of insurance. So, for most people, there’s no getting around home insurance.

Regardless of your situation, having some level of home insurance is highly recommended.

Without home insurance, you’re on the hook for every repair after any type of incident. We’ll go over what’s typically covered in the next section, but without home insurance, you’ll be responsible for paying for each of those incidents. With home insurance, your insurance company will cover the costs of repairs, temporary accommodations, and other potential costs.

What Does Home Insurance Typically Cover?

The purpose of home insurance is to protect your asset in case of harmful, unexpected situations, such as:

• Wind
• Water
• Fire
• Theft
• Liability
• Other unexpected events as determined by your policy

A standard home insurance policy will cover the damage to your home, but depending on the policy you select, that might be where it ends. You may lose the value of the items within your home.

This is why it’s important to thoroughly understand what’s covered, and what’s not, as you proceed down the road towards having a homeowners insurance policy. An ideal policy will cover both your home and the valuables within it, however, these plans will be more expensive.

Home insurance policies can be customized with different types of coverage as well. If you live in an area prone to flooding, you may seek additional coverage for flooding, water damage, and sewer backups.

The Three Types of Home Insurance

There are three common types of home insurance that you can expect to find. You may find other variations, and these types may also go by other names. However, focusing on these three will impart the overall idea to consider while you browse insurance policies.

1. Comprehensive form: At the top of the hierarchy is the comprehensive form of insurance, which covers more than any other type. You may also see this type of policy called “all-risk” because that’s what the lender is taking on. This type of policy is usually exclusion-based, which means anything that’s not listed as an exclusion is covered.
2. Broad form: The mid-tier option provides excellent protection from accidents that may damage more expensive components and areas, but has more basic coverage for everything else. Lower value parts of the home or objects within it will likely not be covered.
3. Basic form: As the lowest level of coverage, you might imagine that this policy offers bare-bones coverage. Parts of your house that are covered will be directly listed on your policy, all other items will not be covered.

Bear in mind that the above list is not exhaustive, but it illustrates the general concepts that you’ll see in home insurance plans – the higher the tier, the higher the cost. You also should be aware of exclusion policies as those are common at higher tiers.

What is Not Covered by Home Insurance?

Home insurance coverage will vary between providers and regions that may have different regulations. However, there are some differences that will need to be explored as you shop around for policies. Every company has its own rules, but there are a few commonalities that are generally not covered by insurance programs:

• Normal wear and tear
• Pest damage
• Acts of terrorism
• Acts of war
• Extreme negligence

You will need to ask any prospective insurance companies to be clear about what will not be covered after you become a customer. You should never be surprised about something not being covered.

Finding the Right Home Insurance Coverage for You

How can you go about finding a reputable insurance company? How do you negotiate your policy before it’s finalized? Before you reach out to a single company, you need to know how to assess them.

• You’ll begin by reaching out to your personal network of friends and family to solicit recommendations for home insurance. If they own a home, they’ve likely had an experience or two with home insurance companies. They hopefully found a company that you can also work with.
• You can also do a general search on a search engine for “home insurance” and your zip code. You’ll see companies that service your area. Read through the reviews and see what businesses create happy customers.
• Once you’ve made a list of some promising companies, it’s time to reach out to them to request a quote. Most places will let you choose between phone or text. Work with them to begin the process of buying the right policy for you.

Protect Your Asset from Unforeseen Incidents

You won’t be able to plan for every potential incident that might damage your home. When it comes to fires, floods, and other disasters, it’s best to have an insurance policy in place to help you rebuild rather than relying on your personal finances to handle costly repairs.

Do you have questions about home insurance that weren’t addressed? We can help you get in touch with some of the best home insurers in the business. Get in touch today to learn more.