Homeowners insurance has been around for a long time having started as fire insurance. It is an essential way of protecting your house. As homeowner's insurance is protecting what is likely your biggest financial asset, it is good to know as much about it as possible.
Things to consider
In buying homeowners or house insurance, whether in the US or Canada there are a number of things to look for in order to get the best value out of your insurance.
Comprehensive or Specified Perils?
One of the biggest things to consider is whether you will want to buy a comprehensive (or All - Perils) policy or a specified perils home insurance policy. There are two differences: the price, and what is covered in the policy. While cheaper, a Specified Perils policy covers all the possible things that can happen that are specifically mentioned in the policy, while a Comprehensive Policy covers everything except what is excluded in the policy.
This is a very big difference meaning the All Perils Policy covers a lot more possibilities
Personal possessions (contents)
OK, so most types of home insurance has some sort of coverage for personal possessions, known as 'contents'. My personal experience in selling insurance is that most people don't have a clue what the replacement, (or actual cash value) of their stuff is - the important number depends on the sort of insurance coverage that you have. With condo insurance, you frequently need to figure this out yourself. there is no such thing as an 'average' amount. It's absolutely different for everyone.
A good exercise to do (I've done it myself), is to make an inventory of your stuff. You don't need to be exact, but the more accurate and thorough your inventory is, the better. Do it room by room: taking into consideration your furniture, electronics, decorations, accessories of every sort:, linens, clothes: everything. Use your best estimate on what it would cost to replace all this stuff with similar but new stuff - or the re-sale value of your stuff if your insurance is based on actual cash value. The odds are if you have a replacement cost policy, the amount it would cost to replace everything would probably surprise you. (it sure did for me - it turned out I was probably off by 50% before I did an inventory!)
There is one thing to consider about this though: if you have anything that is valuable because it is one of a kind, rare, or an antique - a standard home policy is likely not going to be able to properly capture its value.
For example, if you are a painter and you make money from your art, a standard replacement cost policy may literally only cover the cost of the materiel used to make your painting - such as the paint and the canvas! This is because the basic insurance may not be built to cover the added value of your creativity or actual resale value. In order to cover this sort of thing better, be sure to tell your insurance advisor - there may be a special rider available, or perhaps a separate insurance policy (maybe even from another company) may be required. Either way, don't make an assumption the coverage automatically comes with the policy.
Don't under-insure your home!
In most cases, home insurers will make the determination themselves as to what the replacement value is for your home, and mandate that amount. In many cases though, there is a greater opportunity for you to set the value of outbuildings rather than the home. However in both cases, beware of underestimating this value. This is because in a claim if it is found that while repairing or replacing a damaged building that is under-insured - if even only a portion of the total covered amount is utilized - you will not get full recovery of the replacement costs.
For example, if you have a garage that you insured for $20,000, but then it suffered damage and it ends up costing $60,000 to replace, you will be stuck with a $40,000 bill because you only insured 1/3 of its replacement value.
At the same time, if that garage only had partial damage that cost $6000 in damage to repair, you would have to pay $4000. As only 1/3 of the replacement value was insured, so you will only get 1/3 of partial repair value covered as well.
As you own your home, there is the chance that you may cause - and be held responsible for - damage to your neighbor's property. This is because your neighbor or their insurance company may sue you if you're found liable for that damage. This is where liability coverage comes in very handy.
Of course liability coverage usually also protects you for things other than damaging a neighbor's property. It could also protect you and your guests as well. For example, if you have someone over to visit, and they slip and hurt themselves because your kitchen floor was wet after you washed it, that visitor could potentially sue you, as it would likely found that it is your responsibility as the home's owner.
Replacement Cost or Actual Cash Value?
This is a very big consideration. It might be a good idea to look at your policy to determine what you have, or look at the insurance quote details. In most cases, a homeowners insurance policy will be based on replacement cost. What this means is that your house and contents will be replaced with 'like kind and quality'. In other words, if your 4 bedroom 2500 sq ft house burned down, it would generally be replaced (usually to a maximum amount) with a similarly sized home. Of course it would be of contemporary design, with similar features. The same with personal possessions: a 32 in tube TV cannot be directly replaced, so a similar modern model will likely replace it.
Sometimes you may have a less expensive insurance policy based on Actual Cash Value (ACV), this means that if your 50 year old house burned down, the insurance will only pay for a replacement that would be worth the same as the original home. As a result, that 2500 sq ft house with 4 bedrooms may only be replaced by a 1300 sq ft house with 2 bedrooms, due to depreciation on the original home. Or that 32 in tube TV might get you $15- $35 back, or whatever the original would have been worth at the point where it was a loss.