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Home insurance 101

In Canada, the law doesn’t require homeowners to have insurance, but many lenders do. So, if you need a mortgage, chances are you’re going to be getting home insurance. The questions then become: what type of coverage and how to get the best rate?

Comparison shopping is the single most effective way to reduce your insurance costs. Since most providers are offering a similar product, it’s worth figuring out which one is offering home insurance at the lowest rate. To save more money in the longer term, we recommend comparing rates every year when your policy is up for renewal. This approach guarantees that you’ll always have the best rate.

One of the reasons that home insurance rates tend to change more often than those for car insurance which are tightly regulated by the government. Insurance providers don’t have many options other than to change premiums because premiums are one of their two revenue streams. When low interest rates result in small returns on investments, their second revenue stream, premiums, goes up. Keep in mind, insurance providers are also paying out record claims – their volume and cost has been increasing year-over-year due to more and more incidents of severe weather worldwide.

The four key elements of home insurance coverage

In addition to deciding on a policy type, you can pick and choose what coverage to include, selecting from the key elements described below. While all policy types include varying degrees of property and liability coverage, contents coverage and additional living expenses are negotiable.

• Property coverage: Protects the actual structure of the home from perils such as damage caused by fire and burglary. Coverage is based on the replacement value of your home, not the market value.
  
• Liability coverage: There are two aspects of the liability coverage in your home insurance. The first deals with bodily injury, the second deals with property damage.
  
  First, if someone is injured at your home or anywhere in North America, your home insurance's personal liability portion will protect you, if you’re found negligent. This means that your insurance provider will pay for the injured person’s medical expenses, including surgery or dental, for a portion of time from the date of the incident. It does not, however, protect you if you or a member of your household is injured on your property.
  
  Second, if you cause unintentional direct loss or damage to someone’s property, another portion of the liability insurance in your home insurance policy will protect you. It also covers loss or damage caused to someone else’s property caused unintentionally by a child in your care who is 12 years old, or younger.
  
• Contents coverage: Getting contents insurance protects your personal property when it's at home and when you carry it with you, such as a laptop you bring to-and-from school, a bicycle you ride to work that’s stolen or the camera you bring on vacation, subject to limits.
  
• Additional living expenses: Covers you in the event you are temporarily displaced from your home due to a claim.

Optional home insurance coverage & endorsements

Regardless of what policy you get, it will not cover everything. In fact, it may explicitly exclude coverage against certain perils. These are referred to as 'exclusions'.

For wider protection, you must add additional coverage to your policy. These are called 'endorsements' or 'amendments'. They alter the provisions of the insurance contract.

• Flood protection: 

The most important coverage to consider adding to any home insurance policy is flood protection. It’s a peril that affects more and more homeowners in Canada — and it’s rarely included as a peril.

Insurance providers distinguish between several types of flooding. This means that if you want maximum protection against flooding, you’ll need to add two endorsements to your policy. Some insurance providers combine flood-related endorsements into water protection packages.

Overland water: Overland water coverage protects against damage when water enters the home through the foundation and basement floors or walls. It also covers damage caused by floods from rivers, lakes, or other bodies of water due to heavy rainfall, melting snow and rising rivers.

Sewer back-up: This type of insurance covers you when a region's main sewer line backs up into your home, sometimes ruining entire basements and posing massive problems to your home and your health. Severe weather has increased the likelihood of this claim, which is why it is recommended more and more often.

Beyond flooding, you can pick other endorsements to add to the policy. Every region has different risks, so depending on where you live you might consider adding one of these optional coverages:

• Credit and debit card forgery: This insurance helps to offset any financial loss or other losses due to credit or debit forgery.
  
• Earthquake coverage: This coverage is listed as an exclusion in many policies. By adding this type of coverage, you can protect your home from earthquakes, which have been known to take place in some parts of Ontario, British Columbia and Quebec. Earthquakes can cause considerable damage to homes and contents, so it's a worthwhile type of insurance to consider if you live in an at-risk area.
  
• Freezer food: Food in freezers on your premises is protected if a power outage occurs or your freezer breaks. This insurance would be good if you have multiple freezers with food.
  
• Identity theft and identity fraud: Identity theft occurs when someone steals your identity. Identity fraud occurs when someone uses your identity. Both can take place when your credit card, social insurance number or passport are stolen and thieves use these items to gain access to your bank account. While some banks may reimburse you for lost funds, other costs associated with reclaiming your identity can quickly add up.
  
• Lock replacement: If you’ve experienced a burglary, lock replacement helps to cover the locks in your home if they were damaged and your keys were stolen. Some insurance may even help cover the cost of lock repair or replacement.
  
• Mass evacuation: If you live in an area that’s susceptible to weather emergencies, particularly wildfires, you should consider getting mass evacuation insurance. This type of insurance is used in the case of having to evacuate your home and community. It helps cover extra expenses, such as food and lodging.
  
• Rider: If you have expensive items such as jewelry and engagement/wedding rings, musical instruments and equipment or high-end art, you may want to insure them under a separate policy called a 'rider'. There are limitations to how much these items are covered under a standard home insurance policy. Learn more about insurance rider policies.

What is not included in a typical home insurance policy?

Even if you have the most coverage money can buy, having opted for every available endorsement, there are some perils against which no policy will protect you. In the insurance world, these are referred to as 'exclusions'.

Common exclusions are:

• Absence from the home – Damage that takes place while you’re away from the home for an extended period of time.
  
• Damage from renters – Most insurance providers require specific coverage for landlords. A standard home insurance policy is unlikely to protect you if a renter damages the property.
  
• Earthquake – Most policies exclude protection against earthquakes, though you can add coverage in the form of an endorsement.
  
• Existing damage – You’re unlikely to be covered for damage that began before you held the policy.
  
• Flooding – Most policies exclude flood protection, though coverage can be purchased as an endorsement.

There are also some perils for which no coverage is available. They’re referred to as ‘uninsured perils.’ For example, if your home is built on a known flood plain, no insurance protection may be available.

What do these recent home insurance trends mean to Canadians?

Insurance companies make money in two ways: through premiums and through investments. When interest rates are low, it’s more difficult for them to make money from investments. As a result, premiums go up. Since auto insurance premiums cannot be increased without government approval, providers adjust home insurance rates instead.

Adding to difficulty for consumers is the inescapable fact that in the last ten years insurance providers have been paying record amounts of claims due to catastrophic losses caused by natural disasters and severe weather.

In 2021, insured damage for severe weather events across Canada was $2.1 billion, according to the insurance Bureau of Canada. The year, which included hailstorms in Calgary, Alberta and extensive flooding in British Columbia ranks as the sixth highest in insured losses of this type since 1983.

As more homes in Canada are damaged by extreme weather events and flooding, the benefits of a home insurance policy are increasingly significant.

To avoid high premiums, we recommend that Canadians take the important step of comparison shopping for the best home insurance rate. Though there are several other ways to reduce a home insurance rate, comparison shopping is the single most effective tactic.