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How Much Home Insurance is Enough? Putting a Price on Your Lifelong Investment

Posted by  on 2020-02-05  10:00:30 AM
Investment In Home Insurance

As a homeowner, we know how hard you’ve worked to climb up the property ladder and get the keys to your dream home. It’s an especially impressive feat as the housing market skyrockets in the GTA, including in suburbs like Orangeville. That alone makes it so much more important to secure your lifelong investment and ensure its stability. Simply, you’ll want to keep a roof over your head as real estate prices soar. But how can you keep your home secure?

Today, home insurance is just as necessary as keeping up with mortgage payments. A home insurance policy provides lasting financial protection that secures your property and its connected assets in the face of life-changing events.

No matter how much your home’s construction and electrical wiring are kept up-to-code, or how many security alarms and burglar sensors you install, life can still be unpredictable. Your best bet is the proactive protection that a comprehensive homeowner’s insurance policy provides. It starts with figuring out just how much protection you need to land on your feet and keep a roof over your and your loved ones’ heads.

The Basics: Insuring the Structure

Just as there wouldn’t be much of a house without a structure, the bulk of home insurance is aimed at protecting your home itself, providing compensation for damage and accidents that impact living conditions. Standard home insurance policies protect against fire, lightning, hail, explosions, and other disasters. For homes in flood —- or earthquake —- prone areas, these policy extensions are necessary to rebuild or repair your property.

A comprehensive home insurance policy comes with sizeable limits for property damage, ensuring comprehensive coverage and financial resources in case of life-changing disasters. Aside from environmental considerations in Orangeville, home insurance also factors in the value of the property, as well as the cost of a rebuild. The value of most policies is first based on the mortgage, with higher limits recommended by insurance companies for comprehensive coverage.

Home Rebuilding Costs to Consider

The amount paid out by home insurance is largely directed to the cost of rebuilding your house after a disaster to make it livable and safe again. These include:

  • Construction costs, including the type of exterior wall construction and architectural style and the associated cost of materials. As well, special consideration for custom-built structures.
  • Square footage of the property, number of rooms, amenities, and special features, like fireplaces, arched windows, and exterior trim.
  • The type of roof and materials.
  • Presence of other structures outside the main house that also need to be rebuilt, such as a shed or garage.
  • Renovation improvements made over the years, such as a new kitchen or an additional bathroom.

Existing Condition of Your Home

A home insurance policy also factors in the existing condition of the property. A well lived-in home with signs of aging and wear-and-tear may cost a little more to insure since it’s more prone to damage and requires a much more extensive rebuilding. You’ll need more financial resources to rebuild your home and restore it to a safe, optimal condition. Things to consider include:

  • Is your home up-to-code? Depending on when your house was built, building codes may have changed a lot since then, rendering the structure unsafe. While home insurance policies are designed to pay for damages after a disaster, additional damages resulting from aging construction that’s no longer up-to-code may not be covered. Avoid the additional rebuilding expense by making periodic upgrades to your home to ensure that all repairs and construction are covered in case of a disaster.
  • Special features. It’s the little, personalised details that turn a typical house into a home. Yet moldings and carvings, especially dated ones, cost a lot more to recreate, making them sometimes next to impossible to cover in a home insurance policy. Instead, most home insurance policies will cover the cost of rebuilding special features with new standard building materials and construction techniques.

The After-Disaster Economy

The local economy in Orangeville is expected to take a hit after a major disaster. On top of lifestyle changes, homeowners could be looking at an increased cost of construction due to sudden massive demand. In extreme cases, a basic home insurance policy with low limits may not even fully cover the cost of a rebuild.

To avoid this, make sure that your home insurance policy includes an inflation guard clause that guarantees a limit adjustment, enabling coverage for construction costs, no matter how high they become after a disaster. Similarly, you can also look into a replacement cost extension that guarantees the rebuild of your home to restore its original condition, no matter the cost. Finally, an extended replacement cost add-on provides an extra 20% coverage to your allowable limit, to help you afford the cost of the rebuild without resulting in out-of-pocket expenses.

Protection for Belongings

Houses in Orangeville are mostly built according to standard construction materials and techniques, but it’s the furnishings and your prized belongings that truly make it a home. A comprehensive home insurance policy covers everything inside your house, with standard amounts covering 50% to 70% of their value. But is this amount enough? Here’s how you can guarantee comprehensive coverage for everything that makes up your home:

  • Take inventory: Create a detailed list of your possessions and their value to get an idea of how much it would take to restore or replace them. When building your home insurance policy, consider the type of coverage you need for your belongings, whether it’s cash or the replacement value.
  • Consider special coverage: Replacing or restoring high-value items may not be possible on a standard home insurance policy. Instead, you can look into special coverage types or extensions to protect what’s most near and dear to you at much higher limits—a worthwhile investment in your lifestyle.

Consider Living Expenses

Additional living expenses coverage is an important part of home insurance. This amount pays for temporary expenses like a short-term rental and ongoing monthly bills while your home is vacated for repairs. For savvy homeowners renting out a portion of their property for additional income, this coverage also compensates you for lost rent. Additional living expenses coverage eliminates the burden of additional out-of-pocket expenses to help restore financial stability after a disaster.

Liability Coverage

Aside from property upkeep and basic safety, homeowners are also responsible for the welfare of visitors and other third parties on their property. This means that if an accident occurs in your home, then you may be held liable for any injuries and property damage that visitors or neighbours suffer.

Your home insurance policy includes liability protection, which pays for the cost of a lawsuit and legal fees; however, depending on the damage and injury, the base limit may not always be enough. To avoid further losses throughout a personal injury lawsuit, you can protect your finances and assets with an umbrella liability policy. Set to activate after the limit of the base home insurance coverage is exhausted, umbrella insurance is a low-cost and valuable investment in your financial security.

Do you have enough home insurance? Find out how much exactly you need to secure your lifelong real estate investment—and your life in the GTA. Speak with a Goodison Insurance specialist today at 905-451-1236 or contact us here.

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