Home insurance guide for newcomers to Canada

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What newcomers need to know about home insurance in Canada

Buying your first house in a new country and making it a home can be an exciting milestone. But it can also be a daunting task, as you'll be planning for and making decisions on how much you can afford to spend on a property. Plus, you’ll need to get that home insured — another expense related to homeownership. Although not mandatory by law in Canada, it is a necessary part of buying and maintaining a home.

One of the things lenders look for during the approvals process is insurance coverage. “The average Canadian household income is $60,000 to $80,000,” says Anjana Pandathil, a mortgage agent with Dominion Lending Centres National Limited, serving the Greater Toronto Area and neighbouring areas. "If there is substantial damage to the house, lenders want to know who will take care of it.”

“If they have to pay from their pocket, it is not a favourable situation for lenders. Before closing, home insurance is a mandatory condition that they hold,” she explains.

So, before you get approved for a home loan and a mortgage, banks or any other lender will require proof of home insurance.

Insurance helps the homeowner, too, by protecting them from unforeseen circumstances and providing priceless peace of mind.

Here's everything you need to know about home insurance in Canada.

What is home insurance?

Home insurance covers your personal residence, its contents, and your personal liability.

Based on the specifics of your policy, a home insurance policy compensates you for damage to your house and other structures on your property (like outhouses and sheds) caused by fire, flood, and other events. It may also protect you if someone is injured on your property, for instance, a guest who slips and falls on the driveway.

There are several types of coverage that you can expect from your home insurance policy.

A comprehensive home insurance policy covers you for all types of damages, except for those excluded from the policy. A standard policy covers your home and contents that are specifically listed. If your policy doesn’t list theft or vandalism, you will be paying out of pocket for these damages.

A broad policy is a combination that covers all damages except those excluded, and covers all contents that are listed.

While these home insurance policies do not cover you for everything, the good news is that you can opt for add-ons, or endorsements, depending on your unique coverage requirements. For example, a water backup endorsement protects from damage caused to your walls, floors, and furniture in the event of flooding caused by faulty sewage systems. The loss of use endorsement covers certain living expenses if your house is damaged and temporarily unsuitable to live in. A personal articles endorsement can be added if want to insure valuable belongings like jewellery or expensive artwork.

The best way to make sure that you have enough coverage for your home, compare rates from multiple home insurance providers.

Factors that affect your home insurance premiums

According to Pandathil, homeowners can expect to pay an average of $200 to $500 a month on home insurance, depending on the specifics of the policy.

Insurance companies look to a number of different factors when setting an insurance rate.

The location of your home is a big one. According to recent RATESDOTCA’s Home Insuramap data, homeowners in smaller Ontario cities are more likely to pay higher premiums as compared to those in larger, urban cities. In the Windsor-Essex and Sudbury region, Ontario, insurance premiums were $2,000 versus that of $1,350 in Toronto. One reason for this is the proximity to emergency services, such as a fire hydrant or fire station. The farther away these services are, the more time it will take to put out a fire and more likely it is that your home will suffer significant damages in a fire.

For example, if there is a high incidence of thefts and vandalism in your area, your premiums are likely to be higher. The age of your home, roofing, and type of construction also plays a role in determining insurance rates. Premiums for older homes are higher because old building structures, plumbing, electrical, and heating systems are riskier to insure than newer homes. Larger properties will also cost more to insure.

The replacement cost is how much it would cost your insurance company to repair or renovate your home if it is destroyed. The higher the replacement costs, the higher your premiums will be.

Lastly: Climate risks. Some provinces and regions of Canada are prone to floods and earthquakes. If you live in these areas, the likelihood of these natural events — and their associated impact on your home, repair costs, contents and living expenses — would need to be factored into policy premium.

It’s a good idea to take all these factors into consideration when you are contemplating the purchase of your first home. While it might be tempting to save on costs by buying an older home, you don’t want to be stuck in a situation where you are paying high insurance rates for an older structure

How to lower your home insurance premium

While homeownership is expensive, there are a few ways to save on home insurance:

Bundle your home and auto insurance policies

Many insurance providers will offer you a better rate if you decide to combine your home and auto insurance policies with the same provider. Depending on the insurance company, you may be eligible for a discount of up to 15% on your insurance policies.

Safeguard your home with security systems

Installing security systems like a burglar alarm or fire and carbon monoxide detectors can provide peace of mind. They can also help reduce your home insurance premiums by demonstrating that you’ve done everything in your control to protect your home and minimize risks. Monitoring systems also ensure that emergency services arrive sooner, thereby minimising the damage.

Safeguard your home against natural disasters

To minimise risk and damage, you can also make small upgrades to your home to protect against natural disasters. For instance, you could replace single-pane windows with double-pane ones that have strong, tempered glass to protect against wildfires or storms. Or invest in a sump pump or backflow valve to prevent sewage flooding.

Increase your deductible

Your deductible is the amount you will pay out of pocket if you make a claim. The higher your deductible is, the lower your insurance premiums will be. But before you increase your deductible, make sure you can afford it in the event you would need to file a claim.

Check your claims history

If you’ve never filed a property claim, you may be eligible for a discount. And moving forward, if you don’t file for minor claims and just pay for them out of pocket, your insurance premium may go down over the years.

Consider homebuyer’s discounts and benefits you may be eligible for

It’s always a good idea to check with insurance providers to see if you qualify for additional discounts. For instance, you might be able to save on your premium if your house is a new construction or if you’re a member of a cooperative housing association.

Shop around for the lowest price

The best way to make sure that you are getting the lowest price for your coverage requirements is to shop around for home insurance. When making your big home purchase, it is worthwhile to spend a few moments to weigh all your options.