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Home insurance can protect you, your family, and your possessions from loss or liability in the event of a fire, flood, or other disaster on your property. That’s why home insurance is mandatory in Canada. Unfortunately, home insurance premiums can vary based on many factors. So how is home insurance calculated and what you can do to get a lower premium

How Is Home Insurance Calculated?

As mentioned, the price of home insurance can vary according to many things. From your property’s location to the way it’s built, it can all affect how your home insurance is calculated. 

While every home insurance provider calculates your home insurance premiums differently, there are certain factors most insurance companies use.

The Pure Premium

Also known as loss cost or pure cost, the pure premium is the amount of money your insurer must pay to cover a claim, including the fees associated with investigating and initiating it. It’s one of the key factors used to calculate your home insurance premium because it represents the actual price of covering an eligible loss on your property.     

Add In The Expense Ratio

Once the insurer has your pure premium, they’ll add in the expense ratio. The expense ratio is a measure of profitability that’s calculated by dividing all the costs of obtaining, underwriting, and dispensing insurance premiums, by the net premiums earned by an insurer.    

Add The Premium Costs 

Once the pure premium and expense ratio is calculated, together, they make your gross premium. From there, your personal and home factors will affect the premium you get. 

What Premium Cost Factors Affect How Home Insurance Is  Calculated?

While every home is different and every insurance provider has its own policies, here are some of the primary factors that can affect how your home insurance is calculated:     

Your Home Location

Your address makes a big difference in the calculation of your premium because insurers can use your postal code to track claims in your area and figure out the probability of a claim occurring on your property. Insurers will look at 3 factors:

  • Type of claim
  • Number of claims
  • Cost of each claim 

Insurers will also adjust your premium according to your neighbourhood’s history. For instance, if you live in an area that’s prone to break-ins, natural disasters, or other noteworthy issues, you may end up paying a higher home insurance premium for it. 

The Condition Of Your Home

The age and condition of your home are also used when calculating your home insurance. Premiums can vary greatly based on elements such as:


Older buildings can have things like fuse boxes (instead of breakers) and aluminum or knob-and-tube wiring, all of which raise the risk of fires. Some insurers will inspect these devices for safety or give you time to remove them. Having at least 100-amp service breakers can help prevent overloading and fires.     

Roof Age

Being integral to your home’s infrastructure, the condition of your roof is a particularly important element to monitor and maintain. Generally, your roof should be less than 20 years old if you want better home insurance premiums.   

Plumbing Condition

Older homes can also come with lead or galvanized pipes, which have an increased risk of cracks and leaks. For this reason, homes with copper or plastic piping can help you get lower home insurance premiums.  

Heating System 

The same principle applies to your home’s primary heating source. For example, homes with wood stoves and oil furnaces may have added risks of fire, environmental, and carbon monoxide issues. As a result, you may be subject to higher insurance rates than if your home had gas or electric heating.     

Security Of Your Home

The farther your home is from fire hydrants, fire stations, and other emergency services, the higher your home insurance rates can be. Having a home that’s less than 300 meters from a fire hydrant is the ideal situation, which isn’t normally an issue if you live in an urban area. But if you live in a rural environment where those services aren’t close, it could cost you.

You’ll also get better insurance rates by installing self-monitored or company-monitored security systems around your home, like burglar alarms, smoke detectors and cameras. Plus, doing that might give you better peace of mind when it comes to emergencies. 

Claims History

Like your neighbourhood’s claims history, your personal claims record makes a difference in how your home insurance is calculated. The longer it’s been since your last insurance claim, the lower your premiums will be. Many home insurance providers will also check your credit score as part of their underwriting process. 

So be sure to check your credit score before applying for home insurance. 

Basement Type

Since more money, repairs, and work are involved, having a finished basement can lead to higher home insurance rates too, especially if you keep furniture and valuables there. The foundation of your home is another important factor and, despite the benefits of a finished basement, an unfinished one can make it easier for the insurer to inspect.      

Coverage Amount 

Buying more coverage will usually result in a higher home insurance premium, so it’s something to consider. That said, many insurers will offer reasonably priced bundle deals or all-inclusive home coverage that includes perks like family coverage and claims forgiveness. So, depending on what you can afford, the extra money may be worth it.  


Home insurance policies feature a deductible, which is the portion that you agree to pay after you file a claim. If it’s approved, your insurance provider will deduct that amount from the portion they’ve agreed to pay and it becomes part of your claim’s total cost. 

You can then lower your insurance premium by choosing a larger deductible. Make sure to research your options carefully. And don’t forget to speak with your insurer for more information about your deductible and how it can affect the way your home insurance is calculated.    

What Happens If You Can’t Pay Your Home Insurance Deductible/Premium?

If you can’t afford your home insurance deductible or premium because you don’t have any savings to tap into. You may want to consider taking out a personal loan. After all, home insurance is a necessary expense. A personal loan can help you cover the associated costs over a longer period. Potentially making them more affordable. 

However, a personal loan may only be worth it if you can qualify for a low-interest rate. You can do that by having good credit, so don’t forget to check your credit score regularly before you apply for a personal loan or home insurance in Canada.    

Can You Lower Your Insurance Premium?   

Luckily, you may qualify for a lower premium by:

  • Asking your home insurance provider if they offer discounts
  • Checking your credit regularly and having a good credit score (roughly 700 – 900)
  • Finding a job that has group insurance rates for employees
  • Bundling your home and auto insurance with the same provider     

Need To Purchase Home Insurance In Canada?

No one wants to purchase insurance. But if you’re renting a place or you’re in the process of buying a house, insurance is really important. Ultimately, the goal is to never use your home insurance. But it’s still important to purchase the right amount with the right coverage for an affordable price. The two most important things you can do? Understand how home insurance is calculated and shop around and compare your options. 

FAQs On How Is Home Insurance Calculated

Does home insurance work differently for renters?

Insurance is recommended when you rent a home too. This is called renter’s or tenant’s insurance. It is meant to cover the cost of replacing your possessions if they get stolen or damaged. It covers your contents, liability coverage, and additional living expenses (if you’re unable to live in the rental unit while it’s being repaired following a claim).

Is home insurance different for condos?

Even if you’re technically the property owner, condo insurance is somewhat different from home insurance. Condo corporations will have a policy that protects the common areas of the building. Your own policy should provide coverage for your:
  • Possessions
  • Condo improvements
  • Loss assessment
  • Additional living costs
  • Liability coverage

How much is home insurance in Canada?

Home insurance is a complicated issue that involves many factors. Although age, condition, and structure all play a part in how your home insurance is calculated, there are many external factors too, such as your neighbourhood and deductible. So, make sure to shop around and compare multiple quotes before you sign up for any policy.
Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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