Home insurance explained: what is covered and what is not

Home insurance protects one of your biggest assets, and your lender will require it. Reading what your policy covers, and what it leaves out, matters before you need to make a claim.

The short version: a standard policy covers the building, your belongings, liability and extra living costs. Water damage from sewer backup or overland flood is often an optional extra.

What a standard policy covers

• The building, based on replacement cost.
• Your belongings, up to a limit.
• Personal liability, if someone is hurt on your property or you damage someone else's.
• Additional living expenses, if you cannot stay in your home after a covered loss.

Replacement cost, not market value

Coverage for the building is based on replacement cost, what it would take to rebuild, not the market value, which includes land. A home that would sell for $700,000 may cost only $350,000 to rebuild, because land value is not part of the rebuild cost, so you insure the rebuild cost. Check that your limit keeps up with building costs.

Named perils versus broader coverage

Some policies cover only named risks such as fire or theft. Broader ones cover all risks except those listed as exclusions. Ask your insurer which kind you have.

Common gaps

• Sewer backup and overland flood are often optional extras. Many common basement problems are not covered unless you add them.
• Earthquake coverage is often optional.
• Gradual damage from poor maintenance, such as slow leaks or rot, is generally excluded.
• Valuables such as jewellery or art may have low limits.
• Home business and short-term rental use may need extra coverage.

Deductibles

Your deductible is the amount you pay before insurance applies. A higher deductible lowers your premium, but you pay more after a loss. Some deductibles are different for water, wind or hail.

What insurers ask about

Insurers ask about your roof age, wiring, heating type and plumbing, and may charge more or decline older systems. Knob-and-tube wiring, aluminum wiring, oil tanks and old panels can limit your options.

Check your policy for

• Replacement cost coverage on the building.
• Water damage: sewer backup and overland flood.
• Contents coverage and limits for valuables.
• Liability coverage amount.
• Deductibles.
• Conditions about the roof, wiring and heating.

Make claims easier

Keep a list or photos of your belongings, update coverage after renovations and keep receipts for major purchases. Tell your insurer about a basement suite, a tenant or a new wood stove.

Save without losing coverage

Compare quotes from several insurers, ask about discounts for alarms and bundling, and review your coverage every year. A cheaper policy with big exclusions can cost much more after a loss.

If you own a condo, you also need your own unit owner's policy. Renters need tenant insurance.