Property Insurance: Think Twice!

Calgary Red House by Bill Longstaff
Calgary Red House by Bill Longstaff

For most homeowners, their homes are their life savings — the biggest financial investment in their lives. Living in their homes for years can contribute to the false belief that nothing can happen to compromise their homes — that their homes are protected against every danger. As home insurance is not required by law, some decide not to insure their homes.

But no matter how well built your home is, it is always vulnerable to thefts, fire, natural disasters, and other threats. No matter how much of a nuisance insurance expenses can be, paying them protects you and your home, giving you peace of mind. However, as with every investment, you have to think carefully about the insurance policy you choose.

Why Is It So Important?

Principle, interest, and taxes together with insurance (PITI), are the standard components of an overall monthly obligation on a property. A standard house insurance policy ensures a homeowner that if something like fire, vandalism, or theft occurs, he will be looked after and his valuables will be replaced. It protects him from having to pay a huge amount at once, often in emotionally difficult times. But not only homeowners need insurance.

Insurance for tenants protects them when they cause damage to their apartments, their neighbours’ apartment(s), or the building itself. If the landlord covers the damage claims, the tenants’ insurance recovers costs for repairs or replacement of the building and neighbours’ damaged property.

Home Insurance: The Process

There are four types of home insurance you can choose:

  • Comprehensive – Covers both the building and its contents for all risks except for those specifically excluded.
  • Basic\Named Perils – Doesn’t carry the financial risk of each possible loss. When a homeowner wants to save some money, taking a risk by himself, he chooses this policy.
  • Broad – A combination of comprehensive and basic, it provides comprehensive coverage on big-ticket items like the building and basic coverage on its contents.
  • No Frills – For properties that don’t meet normal standards. If there are some problems with the home that don’t fit to insurance standards, a homeowner can save money in the long run by correcting these problems to qualify for better coverage.

Before the agreement is signed, the company has to calculate the risk. Insurers are mainly interested in wiring, pipes, electrical service, heat sources, wood stoves, the age of the roof, and other uses of the home when offering you a price.

You can find more information about home insurance here.

Think Twice!

Ken Corsini, founder of Georgia Residential Partners, LLC, explains how important it is to shop around and get referrals from other investors before buying an insurance policy. “Make sure you are not over-insuring and/or overpaying for your policy. Getting quotes from multiple companies will help you develop a framework for understanding how much you should be paying for insurance,” he says. “In addition, by speaking to multiple insurers, you may find opportunities to save even more by bundling insurance (i.e. auto and property), association discounts (i.e. military or professional associations), safety discounts (smoke alarms, monitored alarms systems), etc.” He even describes a case in which the difference between insurance premiums was surprisingly $400 per year!

Moreover, insurance companies often offer their clients a higher premium, persuading them that they want the highest level of coverage. So when choosing an insurance policy, think twice! Is the price appropriate? Do you really need such a high level of coverage? If you can’t answer the questions, educate yourself and gather information. All investments, even insurance policies, require a responsible approach.

You might also be interested in:

Rights and responsibilities of insurance clients

Guide to Home Insurance in Canada

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