Summer is upon us and you may be thinking of relocating or purchasing a new home. Home insurance will be an important aspect of your purchase. Be sure when you purchase a home that you also understand how home insurance works.
The most often asked questions about home insurance have to do with house insurance to house value ratios. This tends to cause some confusion, because it centers on the difference between the market value of your home, and the amount of insurance required to cover it.
For many home-owners in Quebec, it comes as a shock when they realize their home’s value isn’t the same figure the insurance broker or agent uses to determine their needed coverage. It wouldn’t be uncommon for example, for a home-buyer to be told that their home, which cost them $230,000 in fact, requires $300,000 of insurance coverage.
The biggest misconception among those seeking home insurance, is that the market value of their home will be the same as the insurance coverage amount.
So, if market value isn’t used to determine home insurance requirements, what is? At Merlin Insurance, our insurance experts will calculate the amount of insurance you will need by using your home’s unique characteristics and their corresponding values. For example, your broker will use statistical information such as square footage, age of home, which materials were used to construct your home and etc. For insurance purposes, the estimated value of your home equals the cost it would require to rebuild it. This means your home’s insurance value could be higher or lower than the market-or perceived-value.
To give an example, consider this: If you compared two identically built homes, one with a panoramic mountain view and the other with nothing but fixer-uppers in site, the perceived- or market- value would likely be very different for the two homes. For insurance purposes however, it would cost the exact same amount to rebuild each of the homes from scratch. This is an example of why there is often such a discrepancy between the price a home-owner has paid for a home, and the insurable value.
In insurance circles the insurable value is known as the “replacement cost”. When determining the replacement cost of your home, your qualified Merlin Insurance broker will make sure to include estimated costs on cleaning up your property after your home has been damaged, as well as the increased costs of replacing just a single home as opposed to an entire subdivision. We pride ourselves in covering all aspects of every policy thoroughly; to be sure our clients are receiving all the coverage they need-without unnecessary policy padding. When you review your home insurance policy with your Merlin agent, remember not to be taken by surprise when your perceived (market) value is much different from your insurable (replacement) value.
If you’re interested in working with your Merlin representative to be certain you are receiving the best premium for your house insurance, here are a few things you can do to reduce the risk of home damage resulting in a claim:
- Make your home a smoke-free zone. Non-smoking homes receive better insurance premiums.
- Install an approved alarm system. A home that is well protected is less likely to be broken into.
- Offer to increase your deductible. When you choose to take on more financial risk in the event of home damage, the insurer takes on less. This can help lower your premium significantly.
It is important that you understand your home insurance coverage and costs. If after reading this your questions are still unanswered, be sure to contact us at Merlin Insurance-we’ll be happy to assist!
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