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How does home insurance work in Canada?

What is home insurance and who needs it?

Owning a home, for most people, is the single most expensive asset they will buy or own in their lifetimes. Protecting it from damage, as well as the contents within it, is a particularly important part of ensuring your investment works for you and potentially grows over time.

Home insurance is a financial product offered by insurance companies, banks, and other financial institutions, to protect you, your family, your house, and its possessions.

In Canada, it is not the law for homeowners to have insurance, but many lenders will not provide financing for a home unless home insurance is taken on the property. It reduces their risk on the investment they’ve made. As well, even if you are mortgage free, home insurance is necessary to protect you in case of loss or lawsuit down the road.

Home insurance is useful not only for houses but also condos, and renters who do not own the property but still face risk of loss or damage to their possessions.

Condo insurance is usually cheaper than home insurance and typically extends coverage to your possessions, even when you are travelling with them, or they are being stored in your condo’s storage locker. Lenders also consider that you are living in a shared building with multiple other people and the unique risks that accompany that.

Finding the cheapest home insurance starts with comparison shopping on sites like InsuranceHotline.com. Join the more than 1 million Canadians who have used our service to save on their home insurance.

 

How home insurance works:

Home insurance is generally used for a variety of different occurrences on or in your property: interior damage, exterior damage, loss or damage of personal possessions, and injury that occurs while on the property. You pay a premium for that protection, usually in 12 monthly payments. When or if you make a claim on any of these incidents, you will be required to pay a deductible, which is an out-of-pocket cost before payments are made to you.

As a result, you are paid for damage to your home or loss of possessions (or replacement) as well as protected from legal liability should someone be harmed on your property.

 

How is the cost of home insurance calculated?

Home insurance prices will range and are specific to each homeowner’s needs and situation. For example, newer homes with up-to-date wiring, in good neighbourhoods, near a fire station would be cheaper than older homes in need of upgrades. That’s simply due to risk factors the insurance company is willing to insure and how much it will charge to take on risk.

Every home insurance company assesses risk differently so getting home insurance quotes from a variety of sources will help you achieve the cheapest rates possible. Besides, your home insurance premium depends on the coverage you choose based on your needs and property that needs to be insured.

 

Home insurance coverage types

Basic or Named Perils Insurance

This covers you for the losses (house, contents, and liability) that are specifically listed in your home insurance policy. It is the cheapest policy to get but could cost you more if you are paying out-of-pocket for losses not mentioned in your policy.

Within basic insurance you are covered for both property and liability.

  • Property coverage: Protection against the structure of your home from perils caused by fire and burglary, for example.
  • Liability coverage: It can protect you against lawsuits arising from your personal actions or ownership of your property. For example, if a visitor were to slip and fall on your driveway because you failed to shovel a build up of ice and snow, legal liability can save you tens or thousands of dollars on medical or physical therapy fees. Also, if you cause damage to another person’s property, you are covered under liability insurance. It also protects you from unintentional damage caused by a child in your care.

Broad Home Insurance

This insurance, which is more expensive than basic, covers physical structures such as your home, shed or garage. Contents are only protected from named perils in your policy.

Comprehensive Home Insurance

This insurance costs the most of the three because it covers the most. It provides all risk coverage to both your home (the actual building you are living in and any detached structures, such as a garage or shed) and its contents (any personal contents such as your appliances, clothing, electronics and jewelry) unless otherwise specified.

Additional Living Expenses

If your home was deemed unfit to live in or you were denied access into your home by the police or civil authority as a direct result of damage by an insured peril (e.g., fire, smoke, water damage), your home policy offers coverage in the form of "additional living expenses". Your home insurance policy will reimburse you for the additional living expenses while living away from home.

Optional home insurance coverage and endorsements

Coverage for your home can only go so far. Even after you’ve discussed the plans with your provider and opt for the most comprehensive coverage, you may still want or need more protection.

“Endorsements” or “amendments” can be added on to an existing policy to widen the protection you may already have. One of the most common optional home insurance coverages is flood protection. Flooding is a reality in Canada with melting snow, and many lakes and rivers affecting residential neighbourhoods. Home insurance providers often look at flooding in a variety of ways.

To get the maximum coverage you’ll need to add:

  • Overland water: This is coverage that protects your home against water that enters the home through foundations of basement flooding. Damage caused by flooding rivers, lakes or other bodies of water (if there has been heavy rain or snow melting) is also protected.
  • Sewer back-up: This covers you if a main sewer artery backs up into your home.

Each home insurance company has different policies and wording related to coverage. Speak to your provider or broker about your specific needs and which policy is best suited for you.

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Home Insurance Rates in Canada (2019 - 2022)

Home insurance has been a steady incline from 2019 until 2022. As the chart below shows, the past three years have seen about a 24% increase in home insurance prices. Why?

As per the Applied Rating Index report, over the course of the past three years interest rates remained relatively low until inflation began to rise and interest rates slowly rose in the second quarter of 2022. Until that time, the housing market was hot and as home ownership climbed so did premiums. Renos grew, re-builds and even climate change had a lot to do with the change in premiums.

For example, catastrophic events in 2021 such as the Barrie tornadoes and the BC flooding cost more than $100 million and $450-million in insured losses, respectively, according to the Insurance Bureau of Canada.

The very minimal dip in average prices from Q1 2020 to Q2 2020 had more to do with COVID fears at the onset of the pandemic, than anything else. However, that dip was short-lived and almost non-existent.

Canada Personal Property Premium Rate Change (2019 - 2022)

Average year-over-year increase from Q4 2021 to Q4 2022
+6.1%

Why home insurance premiums in Canada keep rising

According to the IBC, property claims, as a percentage of total claims, have risen from 28.3% in 2010 to 35.3% in 2021.

The past three years have also seen unprecedented growth in home renovation and rebuilding. According to StatsCan, in 2021, Canadians applied for almost 213,000 residential alteration and improvements permits. With that comes higher rates

Due to higher replacement costs – post renovation.

In Canada, but also worldwide, claims made because of catastrophic losses have grown exponentially. In 2010, for example losses plus loss adjustment expenses in 2021 dollars amounted to more than $1.8 billion. In 2021, losses plus loss adjustment expenses in 2021 dollars equaled $2.3 billion. Climate change and its effect on damaging weather patterns have played a major part in this growth. As claims go up so do premiums and the cycle continue so long as events and claims also continue.

Tips on getting the cheapest home insurance

The cost of home insurance will vary depending on many factors such as new build versus old, location, distance from a fire station and size.

However, there are ways to keep costs down and find the cheapest home insurance in your area.

  • Use comparison sites like InsuranceHotline.com to compare rates from the top providers in your area.
  • Bundle your home with other insurance products such as auto. Your provider will reward you for your loyalty and the reduction in administrative fees.
  • Remain claims free. More claims will appear as risk to your provider and that is when prices will rise. Keeps claim down to keep prices down.
  • Install a security system. Maintaining good security and avoiding thefts (and claims) will reduce risk. Many home insurance providers offer discounts for homes with alarm systems.
  • Maintain your home. A well-maintained home will prevent breakdown or worse and will reduce the risk of claims being made.
  • Take out a higher deductible. This puts less pressure on your home insurance provider and reduces their risk.

Filing a home insurance claim

Making claims can cost you money in the long run so before you do, make sure to double check a few things.

Is it covered? Know your insurance policy and make sure you know the details of what is covered and what isn’t

How much would it cost to replace it yourself? Oftentimes, we want to make claim on insurance to “get our money’s worth.” However, the cost of replacing something yourself may be cheaper than, or just above, your deductible. Because claims will cost you money in the long run, it may be better to take matters into your own hands.

The amount of damage. Significant losses or damage warrant a claim and you shouldn’t hesitate to do so if the costs of your losses are high. The deductible is still your responsibility, but you will be saved from large financial losses by making the claim.

If you are facing a lawsuit, you should send the legal fees and a copy of the lawsuit notice to your home insurance provider. Legal fees can add up so take advantage of your policies provisions, even if you are cleared of wrongdoing. Your policy is there to protect you and your insurer must defend you subject to the terms stated in your policy.

How to file a claim?

It’s best to have everything documented. That means keep receipts and photos of your possessions. It makes assessments easier whether you are talking to your insurer or the police when filing a police report.

File your claim as soon as possible by contacting them directly or using an online portal to file a claim.

How is the cost of home insurance calculated?

When determining how much you must pay, insurance companies assess the replacement value of your home and possessions, as well as the likelihood that youll make a claim. For example, owners with no claims history, living in a newly built house, next to a fire station, would be deemed low risk and cheaper premiums should reflect this.

Home insurance rates depend on multiple factors and every company will assess your risk differently. The best way to save on insurance is by shopping around. Compare quotes from Canadas most trusted providers and find a great deal today.

Frequently asked questions about home insurance in Canada

Have more questions about home insurance in Canada? We got them all answered here...

How much does home insurance cost in Canada?

The cost of home insurance in Canada varies from coast to coast to coast. In Ontario, the average rate is $1,487, while in Alberta, the average premium is $2,339. For the most accurate information, take five minutes to answer a few questions about your home to receive and compare home insurance quotes from top insurance companies. Read on to learn more about average home insurance rates in Ontario and Alberta.

How much does home insurance cost in Ontario?

The average cost of home insurance in Ontario is $1,487 per year, according to RATESDOTCA Insuramap data. The city with the most expensive home insurance rate is Windsor at $2,139.47 and the cheapest rate occurs in Ajax with a premium of $1,068.

How much does home insurance cost in Alberta?

The average cost of home insurance in Alberta is $2,339. The city with the most expensive rate is Olds with a premium of $2,796 and the cheapest city to buy home insurance in is Innisfail with a rate of $1,637, according to RATESDOTCA’s Insuramap data.

Rates will change depending on location and specific needs. Compare rates on InsuranceHotline.com for the most current and cheapest home insurance premiums in your area.

Who offers the best home insurance coverage?

This depends on the type of coverage you need and how much you are willing to pay. No single company can claim to offer the best coverage without first assessing your property and understanding your needs. InsuranceHotline.com can show you multiple rates and coverages in one convenient place, saving you time and money when looking for the best deal. Compare home insurance coverages today.

Who has the cheapest home insurance policy?

No one company offers the cheapest home insurance rates. The insurance company willing to offer the cheapest rate will not be the same for everyone, as your coverage costs depend on your individual circumstances. One thing is for sure, different insurance companies offer different rates for the same coverage, so use InsuranceHotline.com to compare quotes. Last year, we helped Canadians save an average of $300 on their home insurance.

Are mortgage insurance and homeowners insurance the same?

Usually, when you put less than 20% downpayment on a home, the lending institution will require you to take out mortgage lending insurance, which will pay the remainder of your debt should something happen to you, and you are unable to pay. It’s protection for the lender – not you.

That’s quite different from homeowner insurance, which protects you and your possessions from loss or legal action. The bank has no connection to that except for the fact that you will be required to have mortgage insurance to receive financing from most institutions.

Can I get a mortgage without home insurance?

No mortgage lender in Canada will approve a loan without first ensuring you have home insurance. If you were to default on your mortgage, the lender could take possession of the property. Your home insurance is a way of protecting their investment.

When should I file a home insurance claim?

Before rushing to contact your insurance company and file a claim, you’ll want to consider a few things.

1) Is it covered?

Make sure you are familiar with your home insurance policy and understand your coverage before you file a claim. This will help you understand what exactly is covered, and for how much.

2) How much would it cost you to fix it yourself?

If the cost to repair the damage is less than your deductible, or will only cost you slightly more, it is wise to forego an insurance claim. The more claims you make, the higher your future premiums will be, so asking your insurance provider to reimburse you for every little thing is short sighted. Sure, a claim could save you a few dollars this month, but keeping your premiums low will save you more money in the end.

Generally, as long as the claim isn’t too serious and will cost you less than your deductible, you are better off keeping insurance out of it. However, if during the repair process you make significant improvements, like replacing a damaged countertop with expensive marble, you should let your insurance know so they can update your coverage.

3) The amount of damage

If your home has sustained significant and costly damage, you should make an insurance claim. The same is true if your home has been burgled and valuable items have been taken.

The financial protection offered by your home insurance company is exactly why you took out home insurance in the first place. You will still have to pay the deductible, but use your home insurance to save you from taking a real financial hit when repairing your home or replacing your things.

4) Liability

If you are facing liability-related legal fees, send a copy of the lawsuit notice to your insurer immediately. They have to defend you, subject to the terms laid out in your policy.

Don’t try to take matters into your own hands. There is no such thing as a cheap lawsuit and you will need the liability insurance to help pay for legal representation, even if you are ultimately cleared of any wrongdoing.

10 Factors that can affect your home insurance premium

Insurance companies take a number of factors into consideration when determining your home insurance premium. If the data suggests you are likely to make a claim, you may be deemed high risk and consequently face a higher premium. Conversely, if you are considered low-risk, you will receive a cheaper premium.

To make this determination, insurance companies consider the following:

1. Where you live.

Home insurance providers use detailed local statistics to track the number and severity of insurance claims. If your neighbourhood has a high number of burglaries, vandalism, house fires, or anything else that might potentially lead to a claim, you can expect a higher home insurance premium.

2. Heat source.

How you heat your home can have a big impact on your home insurance rates, as some heat sources are inherently riskier than others.

  • Radiators are considered safe by insurers, as they rely on hot water rather than combustible substances to distribute the heat throughout your home.
  • Wood stoves are at the other end of the spectrum. If they are not maintained properly, they can cause carbon monoxide poisoning and are a common source of house fires.

3. Type of electrical distribution.

In Canadian homes, especially those built before the 1950s, knob-and-tube wiring is commonplace, but insurance companies are increasingly reluctant to provide coverage to any house that still has it. Over the years, either through tampering or simple deterioration, this technology has become a fire risk.

Most Canadian insurers will give you a few months to remove and replace it with insulated wiring. Once this work is complete and a licensed electrical contractor has approved it, finding an affordable home insurance rate will be much easier.

4. Pipes and plumbing.

As with electrical, the age of your home is a good indicator as to whether or not plumbing will be an issue. Older homes, built before the mid-1950s, used lead piping. This type of plumbing has eroded over time, making it more likely to crack, leak and lead to a home insurance claim. Insurers will reward plastic or copper pipes, more modern and stable technologies, with a lower home insurance rate.

5. Age of roof.

The roof over your head does much more than keep you dry. Modern roofs are surprisingly complex; the angle of the pitch has been perfected to ensure the best possible water run-off, the materials used for tiles is lighter and more durable than ever, and the introduction of fascia and soffits means the roof over your head allows for proper ventilation, decreasing the likelihood of trapped water and mould. Considering this, insurers may provide a cheaper quote to a house with a roof that is less than 20 years old.

6. Primary use of your home.

If you are planning to rent out your basement, allow people to book your spare room on Airbnb, or even use your house as a home office, you must inform your insurance company to ensure you’re covered for these usages. Any peripheral use of your home (aside from normal living), will increase your premium as it increases your coverage.

7. Your claims history.

Past claims are the best predictor of your future insurance needs. If you have a history of making insurance claims, insurance companies will consider you high risk and will set a higher premium. A no claims history, especially if you have had home insurance before, will reassure insurers that you are deserving of a lower rate.

8. Proximity to fire hydrant and fire station.

If a fire does break out in your home, insurers want reassurance that the local fire service will be able to put it out quickly. If you live in a city, your proximity to a fire station is unlikely to make a dramatic difference to your insurance, as all properties should be accessible. However, if you live in a remote area, especially if there is no water source nearby, a fire could do a lot of damage before help arrives, and as a result, you will face a higher insurance premium.

9. Alarm system.

An alarm system, especially one that is monitored by a home security service, will act as a deterrent to thieves and will help lower your home insurance costs. The same is true if you install a monitored security system.

10. Value of your home (replacement cost to rebuild)

The largest home insurance claims come from catastrophic disasters, whereby the whole property has to be rebuilt from scratch.

For this reason, the square footage of your home, and the construction materials used to build it, are hugely influential when it comes to determining your insurance. The larger and more valuable your home, the more it will cost to rebuild, and the higher your premium will be.

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