Home Insurance Explained

If there is insured damage to your house and you are required, by law, to repair or rebuild to a certain standard (materials and minimum size for example), By-Laws provides coverage for the costs you may incur in complying with applicable laws.

Applicable laws may require you to rebuild 100% of the house if it has suffered damage to more than 75% (or less) of the property. By-Laws would provide for demolition and removal of the undamaged portion and provide coverage for any improvements required by law.

For Example – Your replacement cost has been calculated at $400,000 for your home, which means that if there is a total loss (fire for example), it will cost $400,000 to rebuild however, laws and regulations can change. Say, for example, your house was built in the 1960s and it has recently burnt down in a fire. Since the 1960s a law has been implemented stipulating that certain materials that were used to build your home are now prohibited and the required materials are more costly. This extra cost is not covered in the $400,000 which means that you are, technically, uninsured for these extra costs. By-Laws coverage would pay for this enhancement to your house as it is required by law.

If your house no longer conforms to zoning by-laws (located in an area which is now zoned as business property only for example) which could affect any repairs or replacement, speak to your broker about whether By-Laws coverage would include relocation to a residential zoned location. Insurers vary widely in this respect and we encourage you to discuss this with your broker should you find yourself in this situation.

Insurers vary in this respect, while some include By-Laws coverage automatically; others charge a small fee to add this to your policy.

In the example above you would be responsible for paying the increased cost of enhancing the property by using these new materials and / or the cost of relocating to a new area, which could amount to tens of thousands of dollars, if not more.

Ensure the replacement cost for your house is up-to-date, this will reduce the risk of underinsurance overall. Also, consider the small fee (if this cover has not been automatically included) for By-Laws cover.

Deductibles
Definition
A deductible is the portion of a claim which the policyholder is required to pay. The amount is a fixed figure and will typically be paid before the benefits of the policy can apply (i.e. before the claim is paid).

Does a deductible apply to every claim?
A deductible may not apply to every claim you make. Each policy is different and Government regulations differ between provinces. To identify whether a deductible will apply to your particular claim, refer to your policy wording or speak with your insurance broker.

I’ve only made one claim, why do I have to pay more than one deductible?
Depending on the event, a claim you make may extend to more than one section of your insurance policy which can result in more than one deductible being applicable (more than one section of a farm policy, household and farm outbuildings, for example, being affected by the same event).

Some insurers will waive all but the highest deductible, others will waive all but two deductibles (if more than two apply); while others will not waive any deductible. Any waiving of a deductible is at the discretion of your insurer and is not mandatory. If you make a claim that is subject to more than one deductible, speak with your insurance broker to determine what is owed in your circumstances.

I already paid the premium, why do I now have to pay a deductible?
Deductibles are a means of keeping premiums low – see How can a deductible affect my premium? for more information.

How can a deductible affect my premium?
A basic deductible ($500 for example) will be part of most standard house insurance policies however, most insurers provide the option to increase that deductible. Insurers often provide the option of increasing your deductible as a means of reducing the premium. If you are looking for a way to reduce your annual premium and are in a position to afford a higher deductible should a loss occur, discuss the deductible options with your broker.

Discounts
What discounts are available to reduce my premium?
Insurance companies vary with respect to what discounts they will offer to clients as a means of reducing their premium. Below is a list of discounts that may be available to you.
•   Age
•   Alarm system
•   Claims Free
•   Concrete Foundation (Mobile Homes)
•   Loyalty Discount (insuring through the same insurer for a certain number of years or more)
•   Mortgage Free
•   Multi line discount (home and car insurance with same insurer for example)
•   New Home (age of property)
•   Occupation
•   Sprinkler
•   Stability of Residence (lived at the same location for a certain time period)
•   Tie Down (Mobile Homes)

What are the criteria for discounts?
Each discount will have different criteria and each insurer will have different criteria for what may appear to be the same discount. For example, some insurers have age discounts for people who are 50 and older while others only have age discounts for people who are 55 or 60 and older.

By how much will my premium be discounted?
Each insurer will vary with respect to how much they will discount your premium by and this will also vary between types of discount. Some discounts start at 5% off of the base insurance premium and others may go up to 15%. A total maximum discount may apply.

Guaranteed Replacement Cost

Guaranteed replacement cost coverage ensures that, should you suffer an insured loss, your house will be rebuilt even if construction costs have increased since the replacement cost was calculated.

*This is not intended to replace annual reviews of your replacement cost but to provide protection against changes in the market throughout the year.

Most insurers offer Guaranteed Replacement Cost coverage to all clients whose property is a certain age or younger, while other insurers will offer Guaranteed Replacement Cost coverage to all clients, regardless of the age of their house. However, most insurers will only do so on the condition that the property has been insured to 100% of the replacement cost, and that the value has been recently calculated. There is often no additional cost for adding this coverage.

Without Guaranteed Replacement Cost, you may find yourself underinsured if there has been a change in cost of materials, labour or debris removal for example that exceeds your insured value. Should you suffer an insured total loss and the cost to rebuild exceeds the insured value, you would be responsible for paying the remaining costs which could exceed thousands, if not tens of thousands of dollars.

If you do not qualify for Guaranteed Replacement Cost (age of your house for example), replacement cost coverage is still available, therefore, you should regularly review the insured value of your property, ensure your broker conducts regular replacement cost calculations and adjust the insured value accordingly. The more up-to-date your replacement cost calculation is, the less you will be required to pay in the event of a total insured loss.

Identity Theft
Definition
Identity theft insurance covers expenses incurred in restoring your identity.

For example, fees charged for re-application of loans, lost wages from time off work taken to resolve the matter (meetings with your lawyer for example) or legal fees for defending lawsuits brought against you as a result of the theft.

Most insurers offer an Identity Theft endorsement on their house insurance policies. Some will add this automatically while others will charge a small fee to do so. Each insurer offers different limits of cover; we recommend that you speak with your broker to identify what level of coverage is available to you.

All expenses that you incur in order to restore your identity will be your responsibility; this can be as much as $10,000 or more depending on the extent of the theft.

What is a broker’s responsibility when dealing with private clients?

Protect your identity by:

Shredding sensitive information – documentation with account numbers and other personal information you do not wish to keep.

Guard documentation containing personal information (SIN / Passport(s) / Birth Certificates / PIN Numbers etc) – store it in a secure place.

Regularly review your credit card, bank card and any store card statements to identify any payments you may not have made; if you find any, contact your card provider immediately.

Keep a note of what cards and identification you keep in your wallet or purse; if it is ever lost or stolen, you can contact those providers immediately to cancel cards and have replacement ones issued. If your wallet or purse is stolen, contact the police as soon as possible.

Regularly check your credit report; this will give you information such as your credit history, judgments, collection activity and other financial information. Most importantly, it will identify who has asked for your information (which banks etc); if any of it appears out of the ordinary, seek further clarification.

There are a number of organizations that will provide you with a credit report; some of which are:

Insurance Broker

A broker is an insurance professional that has access to sell the products offered by two or more insurance companies.

Your personal lines insurance broker will work with you to understand your insurance needs in order to identify the insurer, policy and coverage available. Personal lines brokers are usually personal lines specialists and are a great resource should you have any questions regarding your coverage or personal lines insurance in general.

Your personal lines broker will provide continuing services regarding your policy including assistance with claims, processing of any changes, contacting you in advance of renewals to discuss options and any other services as necessary.

You should see your broker as a source of knowledge and information and should contact them without hesitation should you have any questions or concerns regarding your insurance needs.

Personal Liability - House Insurance
Definition
Personal liability will provide cover when you are held legally responsible for paying compensation to another person (third party) who you have injured or caused damage to their property (failure to shovel your sidewalks causing someone to fall and hurt themselves, for example).

What is the risk if I do not have $2,000,000 cover?

All insurers provide Personal Liability cover in house insurance policies. However, the limit tends to be $1,000,000 but, for a small fee, and what we recommend, insurers will often increase the limit to $2,000,000.

With the cost of litigation today, liability cases often exceed $1,000,000. If you have $1,000,000 coverage and the total cost of defending an action and compensation exceeds $1,000,000 you would be responsible for paying any amount in excess.

How do I reduce my risk?

Consider increasing your limit to $2,000,000.

It is your responsibility where your golf ball goes – be careful when playing; especially when you are close to other golfers, houses, cars and people close to or on the golf course.

Keep control of your pets; especially around others – a bite could lead to a large liability claim.

Keep your sidewalks and pathways clear of snow to prevent slipping.

When walking with an umbrella or opening one in public, be careful, you could easily poke someone in the eye. Be aware of its size and lift it above other pedestrians’ heads or tip it to the side & away from them as you walk past.

Ensure your lawn is free from rocks when mowing; it only takes one to get caught in the blade only to be shot into a neighbour’s window.

Personal Umbrella Liability

Who would need to consider a Personal Umbrella Liability policy?

A Personal Umbrella liability policy is designed to provide liability protection above and beyond that provided by a standard house and car insurance policy. Therefore, umbrella liability policies will not come into effect until such time as the limits on your house or car insurance policy have been exhausted.

Personal Umbrella Liability policies should be considered by everyone; in particular, anyone who travels regularly to the USA or overseas, or who has property in the USA or overseas. If you own more than one vehicle, it may be less expensive to purchase a Personal Umbrella Liability policy as this would extend the liability coverage for all named vehicles as well as your house as opposed to extending the coverage on each individual car insurance policy and your house insurance policy, all of which would carry separate additional premiums.

Premium Payment Options

Policy Renewal and New Business

You can pay your insurance premium through your Western Financial Group broker using the option that best suits you:

In full
- Cash
- Cheque
- Online payment
- Direct payment to your insurer*

In installments using Premium Finance
- Three payments using your credit card
- Monthly pre-authorized chequing draft
- Post-dated cheques
- Direct payments to your insurer*

*Direct payments to an insurer are not always available; please speak with your broker to determine whether this is an option available to you.

Replacement Cost

What happens once my replacement cost is calculated?

The replacement cost of your house represents the cost of materials and labour to rebuild your house with materials of like kind and quality. Debris removal (if your house burns down, the debris would be the remains from the fire) is extra coverage which is often included.

Calculating the reconstruction cost (often referred to as an RCT) will take into account what materials your house has been constructed with on both the outside and inside. You will be asked questions regarding the makeup of your kitchen and bathrooms, whether your basement is finished, whether you have an attached garage, fire places, French doors and more. All of these factors will help identify the cost of reconstructing your house. If you have granite countertops in your kitchen, for example, the replacement cost will be greater than if you have a laminated countertop. Replacing internal doors will be more costly if they are French doors than if they are wooden. It is important that you provide as much information as possible to your broker to ensure an accurate RCT calculation.

If you have had any custom work done in your house or have any unique features (wine cellar for your extensive wine collection for example), notify your broker to ensure the replacement cost calculation has included this.

After your broker has calculated and you have agreed on a replacement value, your house insurance premium will be calculated based on that value. It is important to update this value regularly, especially when the cost for materials and labour is increasing, to ensure you are not left underinsured.

Why is the replacement cost different from my tax assessment from the Government?

The tax assessment from the Government is a calculation which represents a percentage of the market value and has a limited relationship to the reconstruction cost.

Why is the replacement cost different from what I paid for my house (market value)?

Replacement costs, as discussed above, look at the cost of materials, labour and debris removal in reconstructing or repairing your house. It does not, however, take into account the value of the land your house is built on as it is only concerned with what will need to be reconstructed or repaired following an insured loss.

The market value of a house lies in the value of the land (including what is close to the land – power station / highway / schools / grocery store etc), the value of the building(s) on the land, how it compares to other properties of a similar nature in the residing area and, ultimately, what potential buyers are willing to pay.

What does Guaranteed Replacement Cost have to do with my replacement cost calculation?

In order to qualify for Guaranteed Replacement Cost coverage, insurers typically require an up-to-date RCT on your house and you must have purchased insurance for that calculated value.

I have Guaranteed Replacement Cost coverage on my policy – I do not need to worry about an accurate Replacement Cost.

Your possessions (personal property), detached buildings (shed / garage) and other sections of your policy will have limits based on what you have declared to be your building value. For example, your insurer may limit the coverage for your personal property to 70% of the value of your building; if you underinsure your building; you may very well be underinsuring other sections of your policy.

Sewer Backup

Damage caused by escape of water from a sewer or drain. For example, water coming through a drain, into your basement and damaging the structure of your house and the contents within.

Insurers’ practices vary with respect to sewer backup. Some insurers charge a small fee per dwelling to provide coverage while others provide coverage automatically. Each insurer will offer different limits; we recommend speaking with your broker to identify what is available to you.

Important Note

Sewer backup typically causes damage in basements and can damage your contents, flooring, furniture and the structure of your building. When considering how much damage you could suffer, keep in mind what you store in your basement. Finished basements may suffer more cosmetic and personal property damage, including those with home theatres. If your basement is unfinished, consider the value of what is stored in the basement.

If your home has suffered sewer backup, costs can escalate from removal of sewage waste, cleaning, repair / replacement and redecoration of the affected area and its contents. Drywall may need to be replaced in part or in whole; due to its porous makeup, drywall absorbs water at a rapid rate and can continue to do so until all water (including that absorbed by your carpets) is gone. Wet drywall will eventually grow mould if not removed or dried thoroughly. If you suffer a loss due to sewer backup, you often lose everything that was contaminated.

What is the difference between Sewer Backup and Seepage? Why is Seepage usually not covered?

Mount larger items (bikes / TVs) on the wall and store other valuables and possessions on shelves 1-2 feet above the ground. If you suffer water damage, remove items quickly to reduce damage and health risks. Install a backflow valve to reduce the inflow of water.

Sewer backup occurs when waste from the sewer flows into your property whereas seepage tends to occur slowly and over time and can come from anywhere. Insurers typically exclude any water damage unless it is sudden and accidental however, there are many exceptions.

Water damage is a complex issue with many variables and we strongly recommend you speak with your broker to address any concerns or questions you may have.

Single Limit

When you suffer an insured loss and the claim exceeds the limit of cover for a particular section of your insurance policy, the single limit combines the limits for multiple sections to allow you to take advantage of a higher overall limit.

For example, your detached buildings (garage / shed / greenhouse etc) limit is $20,000, but following a fire, the total damage to your detached buildings is $25,000. The single limit will combine the limits for your dwelling (the house), detached buildings, personal property and additional living expenses which will, typically, add up to 200% of the replacement value of your property. In this case, if your replacement cost is $400,000, your single limit would be $800,000, which would more than exceed the $25,000 claim for your damaged detached buildings.

Insurers’ practices vary, while some insurers add the single limit automatically to your house insurance policy, others require a small fee to do so. In order to qualify for this coverage, most insurers require you to have an updated replacement cost calculation, so make sure you and your broker have kept this up-to-date (every 2-3 years depending on the market).