By Renée Sylvestre-Williams on February 23, 2024
Estimated reading time: 8 minutes
Home insurance is a form of property and casualty insurance that protects your home and personal belongings from damage or loss.It doesn’t offer coverage for regular home maintenance costs or even major expenses that are part and parcel of home ownership—such as replacing the shingles on your aging roof.In this guide, we’ll cover everything you could want to know about home insurance in Canada, from how it works to what it covers and how much it costs.
- What is home insurance?
- How does home insurance work?
- What does home insurance cover?
- What doesn’t home insurance cover?
- How to calculate the value of your belongings
- How much coverage do you need?
- How much does home insurance cost?
- How to buy home insurance in Canada
- How to save on home insurance
- Is home insurance mandatory in Canada?
- How to tell if your home insurance settlement is fair
- Frequently asked questions about home insurance
How does home insurance work?
When you purchase a home insurance policy, you agree to make regular payments, called premiums. In exchange, your insurance company assumes certain risks and agrees to pay if you experience any of the losses covered in your policy.
The premiums you pay go into a large pool managed by the insurer, which is used to cover any claims made by policyholders. This is how insurance companies are capable of covering huge losses that would be financially devastating to individuals.
Watch: Do you Need Insurance?
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What does home insurance cover?
You’ll want to read your contract closely, because your home insurance policy only covers “named perils”—the specific damages or losses outlined within it—unless you purchase comprehensive home insurance.
Common named perils can include:
- Damage or loss to your home
- Theft or damage to your personal belongings
- Damage or injury to visitors to your home or property
- Accidental damage caused to another person’s property
- Personal property stolen from your vehicle
Home insurance is a service to help with sudden, unpredictable events. It isn’t meant to cover every instance of damage or loss to your home. That’s why it’s important to understand what kind of home insurance policy you’re getting. In Canada, there are three broad categories:
- Basic coverage comes with a preset list of things that will be covered, like fire and smoke damage, theft and injury. It will cover only what’s listed in the policy.
- Broad coverage includes basic coverage with some extras, like coverage for your items and home structure.
- Comprehensive coverage flips the script on named perils; instead of telling you what’s covered, it will tell you what’s not covered. Unless an event is listed as not covered in a comprehensive policy, the assumption is that it is.
You can also choose to add endorsem*nts to your policy. Endorsem*nts are amendments or changes to your insurance policy used to add optional coverages to your policy, for an extra cost, or to waive certain coverages that are typically included.
Read more: What does home insurance cover?
What doesn’t home insurance cover?
There are certain things standard home insurance won’t cover. Some events that are routinely left out of standard policies include:
- Overland flooding
- Sewage backup
- Landslides
- Avalanches
- Earthquakes
- Tsunamis
- Damage to or caused by your water pipes in certain circ*mstances. It’s not guaranteed for a reason: The coverage may be voided if you leave your home unattended for too long. However, you can maintain coverage by having someone check up on your placewhile you’re away.
- Damage caused to vacant properties. If your home is considered vacant—that is, not occupied for 30 days or more—and damage occurs, then you may not be covered.
- Poor maintenance. If you’ve neglected your home (for example, you’ve ignored damage to your foundation or a leaky pipe) then your home insurance claim could be denied.
- Valuables. Home insurance will cover up to a certain amount for valuables, usually no more than $10,000. If you have a significant jewellery or art collection, laptops, phones, stamps, coins, toys, etc., you may want to buy additional coverage.
These are standard exclusions, but you may be able to purchase optional add-on coverage, known as endorsem*nts, for risks that are not covered by your policy.
How to calculate the value of your belongings
Whatever you do, don’t come up with a number off the top of your head. Take a systematic approach to calculating the value of your belongings; otherwise, you may undervalue how much your stuff is actually worth.
Take the time to record a list of your belongings, backed up with written and visual documentation (cell phone pics and receipts). Next, figure out how much it would cost to replace these items if they were lost or destroyed today, and add up the total. Keep a copy of all your documentation in a safe place outside of your home, such as a safety deposit box at your bank.
How much coverage do you need?
It depends on your home, its location and your possessions. Most home insurance providers offer calculators to help you figure out how much coverage you’ll need.
How much does home insurance cost?
No two insurance policies are the same, and not surprisingly, their costs vary, too. But according to Ratehub.ca (whose parent company, Ratehub Inc., also owns MoneySense), the average annual cost of home insurance in Canada is $960. People in Ontario pay an average of $1,250, while those in Alberta pay $1,000, and those in Newfoundland and Labrador pay $780.
Insurance companies consider several factors when calculating home insurance costs, including:
- The impacts of climate change on the type and frequency of claims
- The assets contained in the home being insured
- The location of the home
- Renovations made to the property
How to buy home insurance in Canada
To purchase a home insurance policy, contact an insurance broker, provider or financial institution that offers P&C insurance. They will provide you with a quote, based on the amount and types of coverage you need, as well your personal profile, such as where you live and the type of dwelling you need covered.
Before taking this step, consider using an online comparison site to get an overview of the best home insurance quotes available to you. These sites allow you to quickly compare offers from many providers for free.
Read more: How to compare home insurance policies.
How to save on home insurance
There are several things you can do to save on home insurance. Here are a few:
- Bundle your home and auto insurance. This grouping is common, because most people have both and it’s a good way to save money.
- Upgrade your home. Install a security system, repair your pipes, electrical system and roof and you could get a good deal, because the risk of damage will be minimized.
- Absorb a higher deductible. Instead of going for the $500 deductible, go for the $1,000 (if you can afford to pay out of pocket). Reducing the number of smaller claims can net you savings.
- Pay your annual deductible in a lump sum instead of monthly.
- Shop around.
- Have a good credit score. Letting insurers check it could get you a better deal.
- Be loyal. It’s no guarantee but insurers are more likely to reward loyalty over time.
Read more: How to save on home insurance.
How to tell if your home insurance settlement is fair
Home insurance settlements are not meant to improve the state of the home compared to before the damage occurred. There is a formula insurers use when calculating a home insurance settlement, and it factors in things like tax (HST) and depreciation.
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Frequently asked questions about home insurance
No, home insurance is not required by law in Canada. But some finance lenders may require that you have it before providing you with a mortgage.
No, as floods are not considered part of general water damage. But you can buy an endorsem*nt. If you live in an area that is designated as having a high risk of overland flooding, consider purchasing it.
It depends on your policy. For example, if a fire was caused by faulty wiring, the claim may be denied because of poor maintenance.
That’s determined by how the water entered your home. Standard home insurance policies don’t cover damage covered by overland flooding.
Yes. Generally, wind damage is covered by home insurance policies.
Standard home insurance policies don’t cover earthquakes, but you can purchase earthquake insurance.
The simple answer is yes. But, as with a lot of insurance questions, the longer answer is, it depends—in this case, on the type of injury and its severity.
Fireplaces and firepits are warm, cozy and can increase your home insurance premiums. It’s estimated that a wood-burning fireplace can increase premiums by $100 a year. Having a fire pit could increase certain risks, such as property damage. Finally, a firepit may increase the value of your home—which, in turn, can increase your premiums.
It depends on your policy. However, cancelling is very risky. You can switch providers, but it’s never a good idea to cancel your home insurance otherwise. You may have to pay penalties. Plus, if you’re renewing your mortgage, lenders may require that you have insurance. And that’s not to mention the risk of something happening to your home while you’re without coverage.
No. Home insurance covers damage to your home and your possessions. However, mortgage protection insurance, also known as mortgage life insurance, covers the cost of your mortgage payments if you die or are unable to work due to a serious illness or injury.
Finally, home insurance is not the same as mortgage default insurance, which protects the lender when you’re buying a home and have a down payment of less than 20%.
It’s a good idea to talk to your insurance provider and contractor to ensure you and the contractors are covered for accidents that may occur during home renovations.
Read more about insurance:
- The best car insurance in Canada
- The best life insurance in Canada
- Do I need insurance for my business?
- Is your credit card’s travel insurance enough?
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