Don’t overpay on your home insurance premium by evaluating your home incorrectly. Find out what determines the right value and how you can save.
This is an important question – and worth getting it right. For example, if you use the market value of your home as your insured value – in some areas of Canada such as the big cities, the value of the land is substantial. A fire is unlikely to actually damage the value of the land however – so if you use market value it is possible you are over stating the costs of rebuilding the home – and so paying too much premium.
The first step when getting a quote, if possible, is to use the existing insured value on your current policy. This will mean than your quote and renewal can at least be compared on a like for like basis.
However, your insurer (particularly if you change provider) will likely want to review the insurance value to ensure it is set as accurately as possible. After the first year – inflation indexing will automatically adjust the value – but it is important to start out right.
How do insurers or brokers set the value?
They don’t use market value…or the property tax value. They will typically either ask you a range of questions about the construction of your home or, occasionally will send an inspector round to view the property.
A wide range of information is collected – square footage, type and age of construction, number of floors, is there a finished basement, what quality are the overall fittings, type of roof, type of heating are just some of the variables. An in-ground pool or home addition need to be factored in as well.
All the data is then entered into sophisticated computer programs that give an accurate estimate of the cost to rebuild. These costs are for professional contractors and an architect and includes all the costs of debris removal if the original house is so badly damaged it needs to be rebuilt from scratch (let us hope that very rare event doesn’t happen to you).
Your insurance broker will be able to provide the right advice at the right time – but remember – if you have renovations or additions to your home – it is your responsibility to let your broker and insurer know.