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If you own a home, it’s likely your greatest asset 𑁋 it functions as a living space, an investment, and a place to store all your belongings. Given how valuable your personal residence is, it’s wise to have a plan in place to protect it, should it become damaged or destroyed. 

The best way to protect your home is through a home insurance policy. Though you’re not legally required to have home insurance, abstaining from it could prove to be personally and financially catastrophic should disaster strike and ruin your home. Also, your lender may require that you obtain home insurance before issuing you a mortgage. For these reasons, acquiring home insurance is a wise choice – but the downside is that it can be expensive.  

Planning on renting out your home? Then you may need landlord insurance

Importance of Home Insurance

Home insurance policies vary in their coverage, but the following are some of the most common items you can expect compensation for:

  • Dwelling – The home’s actual structure, plus the structures that are attached to it, including a garage and deck. Compensation is based on the home’s size, measured in square feet, and the total cost of replacement.
  • Additional structures – Anything that is not attached to your home, such as a detached garage or shed.
  • Personal property – Personal items that are stolen or destroyed, such as electronics, furniture, and other things you’ve documented as part of your policy.
  • Personal liability – Coverage for medical bills, legal fees, and general repairs that result from accidents at your home that injure someone or damage their belongings.
  • Living Expenses – Reimbursement for costs related to temporary accommodation in hotels and short-term rentals, should your home not be suitable to live in following a catastrophe.

The following are some areas not covered by home insurance:

  • Flood damage – Water damage caused by a burst pipe, a sink overflowing, or a sewer backup is not covered under a standard home insurance policy. You’ll need to apply for enhanced coverage to obtain protection from water damage.
  • Earthquake damage Damage resulting from an earthquake is not covered by home insurance policies, so you’ll have to purchase it as an add-on to your existing policy.
  • Damage from pests – You’re out of luck should your home be invaded by rodents, bees, termites, etc. If you believe this is a concern based on where you live, you should enhance your policy with additional coverage.
  • Wear and tear Structural damage resulting from the natural ageing of materials is not covered under your home insurance policy.

Factors That Affect The Cost of Your Home Insurance

Many factors affect your home insurance premium, so it’s worthwhile to get acquainted with them.

Home Value 

In general, the higher the value of your home, the higher the insurance premium you’ll have to pay. High-priced homes are expensive to rebuild and repair; the cost depends heavily on local construction costs, the home style, the level of customization, and the prevalence of unique features such as a fireplace, granite countertops, and central air conditioning. 

You can reduce your premiums by opting for a low-priced home over a high-priced home.

Age and Structure of Your Home

If your home is old, expect to pay more to insure it. Older homes have unique construction materials and features that are difficult to build and costly to replace. Electrical systems may be outdated and critical elements like the roof may be tattered, resulting in leaks that can cause significant damage. Older homes are also more vulnerable to structural damage, especially in harsh weather.

Consider investing in some upgrades and fixing worn-out structures to save on home insurance on your existing home. If you’re shopping for a new home, ensure you thoroughly scrutinize any ageing homes you come across – avoid ones that may not be worth the trouble, as you could end up paying high insurance premiums.

Check out how gender affects the cost of car insurance

Location of Your Home

The location of your home has a bearing on your home insurance policy. Some of the location-dependent factors that affect your home insurance premiums include:

  • High crime neighbourhood – Homes in communities rife with crime come with higher premiums due to the increased risk of theft and vandalism.
  • Proximity to a fire station or hydrant – Homes located near a fire station and hydrant are less likely to suffer extensive damage from fires, which can translate to lower premiums.
  • Proximity to a river or ocean – Flood damage can cause massive devastation to a home. Naturally, premiums for homes located closer to bodies of water tend to be higher.

Consider the risks your home is exposed to in your area – if there are too many to contend with, your home insurance premiums could end up costing you a lot. Avoid high-risk areas altogether when scouting a location for a new home. 

Home Security

Installing security features in your home may lead to lower insurance premiums. Security systems, such as cameras, smart locks, motion sensors, and video doorbells, discourage criminals from breaking into your home and stealing valuable items. For this reason, insurers view home security systems favourably and may reward you with a reduction in your monthly premium.

Hot Tubs or Pools

Installing a hot tub or swimming pool on your property can increase the cost of your insurance policy. Should someone drown or be seriously injured, you could be personally liable. Insurers compensate for this risk by raising your premium.

If you’re inclined to add a pool, you may be able to get away with a modest insurance hike, provided you take necessary safety precautions, such as installing a locked fence around the pool and keeping it locked down when not in use.

7 Tips For Lowering Your Homeowners Insurance

Here are seven ways you can lower your home insurance cost:

Increase Your Credit Score.

Insurance companies have long argued that an individual’s credit score is positively correlated with increased insurance risk. As a result, they use a credit-based insurance rating system when setting home insurance premiums.

Ensure you maintain a solid credit score. You may get a discount on your home insurance policy if you allow your insurer to inspect your credit report. You can improve your credit score by making bill payments on time, keeping your credit utilization ratio low, and applying for new credit accounts only when needed. 

Increase Your Deductibles

A deductible is an amount you’re obligated to pay in the event of an insurance claim. By increasing your deductible, you’re transferring more risk from the insurer to yourself. As a result, your monthly premium will decrease.

Compare Rates and Get Quotes

Shopping around is crucial for securing a home insurance policy at a reasonable rate, but the process can be taxing and time-consuming. Luckily, you can utilize an insurance comparison site to quickly compare rates and receive multiple quotes with a single application.

Bundle Your Insurances  

If you bundle your home insurance with the same company you use for your car or life insurance, you may be eligible for a discount. 

Don’t Overdo Your Coverage

Consider the level of protection you require from your home insurance policy. Compile a list and assess the costs and benefits of each type of coverage. The more coverage you desire, the higher your monthly premium will be. The type of insurance policy you choose should provide adequate protection based on your circumstances – it’s important not to add redundant coverage that can leave you committed to hefty premiums.

Thinking of switching providers? Learn how to cancel your home insurance policy.

The following types of coverage characterize home insurance policies:

  • Comprehensive This policy covers the home structure and the contents contained within, with some exceptions. The policy covers damage and loss resulting from fire, theft, lightning, or vehicle/aircraft impact. However, damage from earthquakes or flood is not covered.
  • Basic/Named Perils With this policy, only items that are specifically named are protected. 
  • Broad – This policy offers comprehensive coverage on expensive items, such as the home structure and contents. It’s cheaper than a comprehensive policy but pricier than a basic/named perils policy.
  • Personal Liability – With this policy, you’re covered for legal and medical bills incurred when someone gets injured on your property or has their personal belongings damaged or stolen.

Choose a Home Wisely

Familiarize yourself with the factors that affect home insurance premiums – if you know what to look for, you can focus your search on homes that cost less to insure. A high-priced home in a crime-ridden neighbourhood that’s prone to flooding is probably not the best way to keep your insurance premiums in check.

Be sure to buy a house you can afford, or else you might find yourself house poor.

Watch Your Claims History

If you have zero claims in your home insurance file, you’re more likely to qualify for a lower premium. While claims on their own don’t increase your premium, the frequency of claims made (including premium made on your previous residence) does. You may wish to pay for trivial incidents out of your pocket rather than filing a claim, thereby avoiding a possible premium hike. One or two claims made per decade is acceptable.

Home Insurance FAQs

Will my credit score affect my home insurance?

Depending on the province you live in, insurance companies are allowed to check your credit history to determine your premium. Generally speaking, in the provinces where checking credit during the insurance application process is allowed, poor credit may increase your premium. 

Can previous claims affect your home insurance costs?

Yes. Insurers take into consideration claims filed on your previous residence when setting your premium.

Will remodelling increase my home insurance?

Yes, because remodelling generally increases the value of your home. Remodelling will increase your home insurance by a little or a lot, depending on the type of work done. Big increases can result from the installation of a swimming pool or an extension that increases your home’s size. 

Bottom Line

While most people agree that home insurance is necessary, there is a wide range of factors that affect the cost you’ll end up paying. As with other forms of insurance, expect a trade-off between your coverage and premium. Ensure you carefully examine the types of policies available and choose the one that offers you the best coverage at the lowest price. 

Mark Gregorski avatar on Loans Canada
Mark Gregorski

Mark is a writer who specializes in writing content for companies in the financial services industry. He has written articles about personal finance, mortgages, and real estate and is passionate about educating people on how to make smart financial decisions. Mark graduated from the Northern Alberta Institute of Technology with a degree in finance and has more than ten years' experience as an accountant. Outside of writing, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.

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