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When you’re about to take out home insurance, you naturally wonder what value it should cover. Here are five tips to help you calculate a suitable coverage amount and then choose the insurance policy that best matches your circumstances.
Make an inventory of your possessions
Whether you own a home or a condo or are a tenant, you deserve home insurance that covers all your property. The amount of your insurance largely depends on the value of what you own. You therefore need to make an inventory of your possessions.
Make a thorough list of all your possessions. Given how many things we tend to accumulate over time, this might seem like a tedious exercise at first. But if disaster strikes, you’ll pat yourself on the back for doing so! Fortunately, there are plenty of smart phone apps that can make your task easier. Another useful tool is the electronic form available on the Insurance Bureau of Canada website.
Make sure that you keep your inventory in a safe place away from your residence because you certainly don’t want to lose it along with your possessions when disaster strikes! Your office or your bank are good options. Saving a digital copy of the inventory of your home contents on a cloud storage site like iCloud, Google Drive, OneDrive or Dropbox will make it easy for you to recover it when needed.
Ensure that the inventory accurately reflects your home’s contents at all times. Therefore, update your inventory regularly – because it would be surprising if you didn’t purchase any more items from now on… hot tubs, TVs, computers and so on.
Estimate the value of your home
The other most important element in calculating the amount of your home insurance is naturally the value of the home itself. But be careful! What counts here is not the price you paid for your home, nor its municipal assessment, nor its market value. What counts is how much it will cost to rebuild if it was totally destroyed as of today.
To calculate these costs, consider the materials used, as well as the age and dimensions of the house and the number of rooms it contains (this latter information can be determined with your insurance broker). Don’t forget to include all the renovations that you’ve made over the years. For example, you don’t want to feel that you totally wasted all the time, money and energy (!) you might have spent renovating your basement.
Choose the type of replacement value
Another question to ask yourself in order to correctly calculate your insurance coverage is: do you want your destroyed possessions to be replaced by items that are “brand-new and wonderful”, or simply at their value the day of their loss? If you prefer the first option, choose “replacement value” insurance, and if you prefer the second, choose “actual cash value” insurance. Since the latter is cheaper than the former, discuss both options with your broker in order to choose the best one for your situation.
The above factors can help you calculate the amount of your home insurance coverage. However, two other important decisions will affect your insurance premium: type of policy and deductible amount.
Choose your type of policy and, if needed, request additional protection
You will have a choice between two types of home insurance policies:
- “Basic or named perils” (limited coverage, which is cheaper), or
- “Comprehensive” (the most inclusive coverage, which is more expensive)
It boils down to whether you want basic coverage or additional coverage (called “endorsements”). While basic protection generally covers damage caused by fire, theft, strong winds and some types of water damage, other potential damage requires endorsements. This is particularly the case for sewer backup and earthquakes.
Choose the deductible amount that suits you
Your home insurance premium will also depend on the deductible – the amount you agree to pay in the event of damage before receiving compensation. This amount is generally between $300 and $1,000.
Does all this make your head spin? Don’t worry: your insurance broker is there to help you. Their role is precisely to guide you in identifying the best coverage for your needs. So, take a deep breath… and call us! (link)
If you’re more comfortable using the web than the phone, that’s no problem either – because it’s dead easy to request a home insurance quote online. (link)