|Also known as "fire
insurance", a typical homeowner's insurance package covers the home and
its contents from loss by fire, theft, and other specified perils such
as lightening, wind damage, flood, explosions, vehicle impact,
and so on. It also includes public liability protection against injury
to other people while they are on your property.
Be sure that your
homeowner’s insurance protects
you. Don’t get stuck with a policy that over-insures,
doesn’t meet your needs.
How much coverage do you need?
how much coverage you need,
find out the insurable value of the building only. You only want to
the building . . . not the land. If your house burns to the ground, the
land will still be there.
insurance and your mortgage
broker can estimate your home’s
insurable value. Also, if you have a mortgage, the lender will have
a mortgage assessment. You can ask your lender for a breakdown of the
It will tell you how much of your home’s value is for the
If you live in a
condominium townhouse or apartment,
the exterior or common parts of the building are usually insured by the
condominium corporation. You are required to insure the interior and
contents. Check with your condominium manager to be sure what coverage
they provide and what you must provide.
The next step is to
choose between regular coverage
and replacement coverage. Replacement coverage costs a bit more but it
covers you to rebuild the house at current prices. Regular coverage
only the depreciated value of the building. This will not cover the
cost to replace or repair the house. When you consider the cost of
and the cost to rebuild a house, it is usually wiser to go with a
lenders have a special interest
in homeowner's insurance. It pays the loan if the building is
For this reason, mortgage contracts include a clause (usually called a
loss payable clause) that gives lenders first claim to insurance money
to cover the outstanding loan. If the mortgage amount is greater than
insurable value of the house, the lender can insist that you take out
on the value of the mortgage. In other words, you’ll pay for
than is needed to replace the house.
What happens when the mortgage
is greater than the value of the house?
and Murray bought a house for $180,000.00.
The lot is appraised at $70,000.00 and the building at $110,000.00.
the insurable value of the building is $110,00.00. In order to buy the
house, they needed a mortgage of $125,000.00. As the mortgage is
more than the insurable value of the building, Donna and Murray must
for $15,000.00 worth of extra insurance.
How can you
avoid paying for more insurance
than you need? Before you make an offer to buy a house, make sure you
keep the mortgage at or below the insurable value of the building.
selling price of house
your down payment
|Amount of needed mortgage
value of building
|Difference between insurable value
You want to
get a positive number. A
positive number means the house's insurable value is greater than the
A negative number means that the house's insurable value is less than
mortgage and you will need more insurance than is needed to replace the
to building coverage, a homeowner's
insurance package will cover the contents (furniture, clothing,
and other personal property). Generally, a basic package covers what
would need to start over again if everything burned or blew up. If you
want to protect things like stamp, coin, or jewellery collections,
need additional coverage. Or, just keep these valuables in a safety
box. It’s less expensive.
To get enough
coverage (but not more than you
need), list your possessions by description and value (keep sales
if you have them). Keep this information in an off-site safety deposit
box to prevent loss in case of fire.
your homeowner’s insurance package
will include liability insurance. This protects you from the ruin of a
visitor's fateful fall on the front steps. By the laws of most lands,
are responsible for the safety of other people while they are on your
If anyone is injured, even though you took no deliberate action to
the injury, you could be sued. Ask your broker to recommend the
amount of liability coverage. In a world of lawsuits, there is little
of having too much liability insurance when compared to the risk of
your coverage up to date
increase or decrease the value
of your property, (such as by an addition or demolition of some of the
building or its attachments), remember to update your insurance policy.
Avoid the risk of too little coverage or the cost of too much.