Technical jargon

There's no such thing as a standard homeowner's policy. Coverage varies from one insurer to another, and sometimes it's difficult to figure out what type of policy it is. Whether you're dealing with an independent insurance broker who has access to many insurance companies or with an insurance agent who works for a specific insurance firm, ask for an explanation of anything you don't understand. You want to make sure you have the coverage you need.

Policy terminology

The insurance policy terms described here are those used most frequently.

Comprehensive Policy

A comprehensive policy covers both building and contents for all risks that are not specifically excluded. Be aware of the exclusions, limits, and conditions in the policy. For example, is sewer back-up/water damage covered or is there an additional charge for it?

Broad Policy

A broad policy costs less than a comprehensive policy. It generally covers the building against all risks that are not specifically excluded, but the contents are insured only against named perils. Again, note the exclusions, limits and conditions.

Basic or Named Perils Policy

A basic/named perils policy will save you money, but it covers the building and contents only for those perils that are specified in the policy, and they may be subject to payout limits and conditions. Some insurers call this a "Standard Homeowners" policy.

Actual cash value versus replacement cost

The actual cash value is usually the cost of replacing the property with something similar, minus an allowance for depreciation due to wear, condition, age, etc. A deductible may apply.

Replacement cost may cover only a certain percentage of the total cost of rebuilding/repairing the building. Guaranteed replacement cost coverage may cover full cost or to an agreed amount. Full replacement cost with automatic inflation adjustment may cover the full cost. A deductible may apply.

Because these words don't always have the same meaning in insurance policies, ask your insurer, what is the difference between a building's replacement cost, guaranteed replacement cost, and full replacement cost with automatic inflation adjustment, and which coverage do you have?

To safeguard the coverage you have selected, whenever you renovate or make additions to your home that will raise the cost to repair or rebuild it, inform your insurer of the improvements. Note that it may increase your premium.

Although most policies provide replacement-cost coverage for the contents (personal property) of your home, if your policy doesn't, you may want to consider paying extra for it.

There are low limits for computers, jewellery, bicycles, negotiable securities, etc. For an extra charge per category (some are expensive), you can have additional coverage, called either a rider, endorsement, floater, or form on your policy. The payout limit will be higher per item or category, but it may not be high enough to recover the full replacement cost.

The payout limits for insured losses are generally detailed in the policy under "Basis of Claim Payment."

Third party liability coverage

Most policyholders opt for $1,000,000 per occurrence. More coverage may be available at additional cost.

The home must be insurable

If it's not insurable, you may not get a mortgage. The insurer will want to make sure that the electrical wiring, plumbing, roof, etc., meet their standards. And if there's a wood-burning stove in the home, it has to have been properly installed and maintained.

Ways to lower your premium

The higher the deductible for your home and contents, the lower your total insurance premium. The deductible amount shown on the policy is the cost that you will personally have to bear for any insured damage or loss, and the balance of your claim (claims may be subject to limits, conditions, exclusions) will be paid for by your insurer. Generally, a deductible does not apply to liability coverage and to most riders, but check your policy.

Some insurers give discounts for:

- a home that is ten years old or less (an older home may qualify - check with your insurance broker)
- a mortgage-free home
- non-smoker(s)
- mature owner(s) (if 50 or over, sometimes even younger, you may qualify for a discount)
- a claims-free record for a certain number of years
- smoke alarm(s)
- a security system (and if it's monitored, it should lower your cost as well)
- a sprinkler system
- more than one policy with insurer
- more than one family member with insurer
- Have I missed anything? Ask your broker.

And, initially and every time you renew, ask your insurance broker to provide you with quotes from at least three financially-stable firms that provide good service.

Insurance Bureau of Canada

For more information on buying home insurance, including condominium, cottage, mobile home, and tenant insurance, call the Insurance Bureau for their excellent pamphlet "Home Insurance Explained."

Their Toronto number is 416-362-9528, for long-distance callers their toll-free number is 1-800-387-2880 (Ontario only). Or visit their site at www.ibc.ca.