The kids are back in school and now it's time for you to do your home work.
If you have not updated your home inventory and estimated value of your possessions for more than 12 months, you may be in trouble if faced with a "final exam" -- an insurance claim.
Simply paying property insurance premiums on time is not enough. To ensure your possessions, shelter, financial well-being and your home-based business, if you have one, are safe and secure, you should actually read your insurance policy or go over the details with your insurer's representative.
The contract between you and the insurer -- your policy -- must accurately estimate full value and must include relevant details of what you own, which usages are involved and what replacement would cost. If you carry too little insurance or if changes in use would disqualify some or all of a claim, that's your problem because the insurance industry considers it your responsibility to arrange correct coverage for your property and lifestyle.
From a consumer perspective, "The Best" insurance brokers and agents may be those who contact clients annually to ensure coverage reflects property value increases, renovations, new acquisitions and extended usage like a start-up home-based business, a new equipment-intense hobby or the inclusion of foster children.
If you are on your own with this annual up-date, tie the inventory review to a seasonal shift associated with "buying sprees" like back to school or Christmas. Include taxes in your listing. Minimum contents coverage is usually calculated as a percentage of building value. If the value of your possessions exceeds the insurer's calculated percent, then additional coverage may be required to protect the new home theatre, latest diamond ring or "had-to-have" golf clubs.
To up date the building's replacement value, contact your insurance representative. "Insured value" does not include land value, often a considerable portion of market value.
The Insurance Bureau of Canada (IBC), the national trade association of the private property and casualty insurance industry representing more than 90 percent of non-government home, car and business insurance, provides consumers with details on their responsibilities and rights. Armed with accurate information on what to expect, you are well prepared to ask the right questions whether you are searching for a new insurer or renewing a policy. Not convinced there's value in learning more? Did you know ... ?
- Decide on Agent vs Broker: "Agents" work for one insurer and can only offer that insurer's policy types and features to consumers. You must fit this insurer's criteria for "insurable" or find your own alternative supplier. "Brokers" each represent a small range of insurance companies, ideally chosen to provide the most useful range of products and options for the client base served by that broker. When shopping around, ask each broker which criteria they use in selecting companies and how their business is distributed between the insurers. If one insurance company drops you, the broker will attempt to switch you to another insurer.
- Compare beyond price: IBC Consumer Information Officer Don Stewart provides an example: "Coverage matters. All policies are not the same as companies can enhance their policies or not enhance them. For example, all companies will insure to estimated replacement cost. Most will add 'sleep at night' enhancement—guaranteed replacement cost." Steward goes on to explain that some insurers will pay all the replacement cost even if it exceeds the insured level while others will cap over-payment to a percentage, perhaps 20 percent.
- Read the fine print: "People should always read their policy so they know what they are covered for because it's better to know before than after," said Stewart. For instance, policies do cover wind damage—something blowing off or onto your house—but a tree falling on a home can add complications beyond the damage. The policy may include payment to have your tree taken off the building, but not off the property. If the tree belonged to a neighbour, your insurance covers the damage to your home. If the tree was known to be in dangerous condition and the neighbour did nothing about this, your insurance company may go after the neighbour's. Let the insurers fight this out rather than taking on the tree owner yourself since any resulting settlement from your neighbour will be based on depreciated value whereas your insurer will pay you replacement value.
- Hidden Secrets May Cost You: Owners of older homes may have knob-and-tube or aluminum wiring within the walls without knowing it. If the house burned down and one of these deficiencies was discovered later, the policy would still stand. However, if your insurer inspects your property at any point and finds a "red flag" like an oil tank or knob-and-tube wiring, you could be given notice to modernize or face having your policy cancelled. Switching insurers could trigger a similar situation. Once you sign up, an insurance inspector may discover a condition the insurer will not cover and you'll have to fix the situation, or find an insurer who will overlook it.
- It's For The Unaffordable, Not Home Maintenance: IBC explains that home insurance is there to protect you from having to pay out a huge amount at once, often at the very worst time emotionally. "Auto insurance is claims rated and it is affected by claims," said Stewart, comparing insurers' reactions to a claim. "In home insurance, you would lose the discount for being without a claim. Where you run into a problem with home insurance is two or three claims in two or three years. When you have a claim and it goes on record, the amount does not matter. Frequency does....Home insurance is not a maintenance contract...legally you can claim all kinds of things, but insurers don't like this so they will drop you, and others will not want you."
Insurance is an integral part of the price of real estate ownership. If property insurance lapses, existing mortgages are in default and may become due and payable. New financing may not be possible. The accompanying loss of millions in personal liability coverage places you at risk from law suits. Consider insurance premiums, insurer-driven renovations and continuing property modernization as basic ownership costs.
"Welfare is society's problem, not insurance," said Stewart. "They are there to try and make a profit. If you can't afford to keep a house, you'd better sell it ... . A lot of insurance companies do charity on the side, but not in business. GM does not reduce the price because you cannot afford it."