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Time to update your home insurance?

If you own a home, you probably have insurance on it.  A home is a big investment and, whether you own your property outright or have a mortgage on it, you want to protect it as much as possible from any loss or damage.

Institutions that lend money for mortgages require that you protect your property (and their collateral) against hazards, such as fires and storms, with homeowner's insurance.  Moreover, if the down payment on your home is less than 25 per cent of the purchase price, you may also be required to buy mortgage insurance against payment default.  This cost can range from 2.5 percent of the mortgage amount and is added to the mortgage principle.  Many lenders also offer mortgage life insurance that pays off the balance of your mortgage if you or a co-borrower dies.  The cost is also added to your monthly payments.

When purchasing a home, your Realtor and insurance broker will be able to explain to you the various forms of homeowner's and mortgage insurance available and offer you valuable advice.  But even if you have owned and insured your home for years, it's a good idea to review your insurance from time to time.  The standard homeowner's policy comes in a package that includes three different kinds of insurance in one.  You want to ensure you're getting the best deal for your money and that circumstances haven't changed where you may require more or less coverage.  If you have completed a large renovation project or an addition to your home, for instance, you will want to increase the amount of coverage on your dwelling.

Generally, a homeowner's policy includes:

Dwelling coverage:  This compensates you if your house or other structures on the property are damaged or destroyed.  The land itself is not insured.  The amount of dwelling coverage you get depends on the value of your house and any other structures on the property such as a garage, carport, shed, decks, swimming pool, etc.  Dwelling coverage will provide money to repair or replace your damaged house or other structures.   It should also pay for additional living expenses if you have to move out of the house while it is being repaired.

Contents coverage:  This compensates you if your belongings are damaged, destroyed or stolen.  Your personal property includes such things as furniture and appliances, clothes and jewelry, books, plants, tools, etc.  To a certain extent, personal property, that is usually kept at home, is also covered even if it is not on the premises.   Property being stored temporarily for someone who is not part of your household is normally not covered.

Third party liability:  This protects you if a claim is made against you by a third party, up to a maximum amount -- usually a million dollars.  This means that if a visitor to your home is injured, or their belongings are damaged or destroyed, you are protected.   The coverage should also protect you if you accidentally injure someone or damage their property elsewhere.

Regardless of what a homeowner's policy covers, there are always limits on just how much money will be paid for a variety of damages.  Most insurance companies will cover you only for a specific list of hazards or insurable perils that you both agree to in advance.  But it will not cover you for every possible damage, and only up to a specified amount.

All risk insurance, for instance, covers your dwelling and contents against such perils as fire, lightning, explosion, sudden release of smoke, windstorm or hail, water escape from rupture or freezing of plumbing, robbery, vandalism, falling objects and certain other incidents.  But there are other perils that are often not included such as damage from floods, waves, melting snow and ice, malfunctioning sump pumps, contamination by pollutants, normal wear and tear -- to name a few.

Some insurers offer riders on your policy, where you pay extra for insurance against such things as earthquakes, furnace oil spills, sewer backups and other damaging events.

If you operate a business out of your home, many homeowners' policies will not cover you against damage or third party liability.  Some companies now offer special riders, or separate insurance policies, which you pay extra for to protect your home-based business.

Homeowner's insurance works on the same principle as other forms of insurance.  While you pay a premium to protect yourself against something you hope won't happen, the insurance company is betting that your house, belongings and guests will remain safe and secure.  Insurers are very careful about who they underwrite policies for.  If you have ever filed a number of severe claims or had a series of fires under unusual circumstances, for example, you will be considered high risk and may have difficulty being accepted for coverage.

Insurance costs

Your home and property are valuable possessions.  The best way to protect them is to get a homeowner's policy that covers your needs without having to pay for unnecessary extras.   That's why it pays to review your policy regularly and to shop around.

The amount of insurance you pay depends on a variety of factors such as:  the number of perils you choose to be insured against; the value of your home and contents; whether or not you choose to have replacement cost insurance (you will not get any more than the item or house was worth when it was damaged or destroyed unless you have this form of insurance); what riders, if any, you buy for extra coverage on valuable items; and how your home is rated by the insurer.

A preferred rating is usually given to houses less than 10 years old and to older houses that have been updated to the standards of a new house.  A standard rating is given to a house that is more than 10 years old unless you can prove that it has been properly updated.   Regardless of the rating, many insurers will give you a discount on your premium if you have installed such safety measures as fire alarms and security systems.




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