House insurance is critical. However, it is an added cost that sometimes people forget about when purchasing a home. While it isn’t necessarily against the law in Canada to not have home insurance when you own a home, most if not all financial institutions and lenders will ask for proof of insurance before approving your mortgage and allowing you to close on your house.
Having home insurance is to your benefit. It can ease your mind, knowing that your insurance company will cover your losses in a disaster (with the right insurance coverage, of course), and you won’t have to spend a fortune replacing all your belongings. With that being said, there are two insurance terms that all homeowners need to be aware of: insurance premiums and the deductible.
What is an Insurance Premium?
An insurance premium is the amount you will have to pay for your insurance policy. Typically, you can either pay this as a lump sum at the start of the policy term, or in monthly installments. If you fail to pay your premium, you risk your insurance being suspended, in which case you won’t be covered in the event of an accident.
What is a Deductible, and How Does it Affect My Premium?
A deductible is an amount you must pay when you make an insurance claim, and it does have an impact on your premium. For example, if your deductible is $1,500, you must pay that amount toward the claim amount before your insurance company will step in and pay for the rest. Usually, the higher your deductible, the lower your insurance premium will be.
How Can I Reduce My House Insurance Premium?
There are several ways to reduce your home insurance premium. Most notably, you can shop around with different insurance companies, increase your deductible or bundle your insurance, to name a few.
As you should with any major purchase, comparison shopping for home insurance is a good idea. By shopping around and doing adequate research, you’ll get a feel for the rates and terms offered by different insurance companies. Remember: the best type of consumer is an informed consumer.
Increase Your Deductible
As stated above, the higher your deductible, the lower your premium. For example, if you have a deductible of $500, your premium will be higher than if your deductible was $2,000. This is because the insured takes on more financial responsibility in the event of an insurance claim, meaning the insurance company will have to pay less money, should the unthinkable happen.
Bundle Your Insurance
If you bundle your home and car insurance, many insurance companies will give you a break on your monthly premium. They gain from having you hold all your policies with them, and oftentimes will reward you with a discount. It can also make your life a little simpler to manage only one payment each month instead of trying to keep track of multiple insurance premiums with various companies. It’s a win-win situation.
Reduce the Coverage
When shopping around for home insurance, look up how much coverage is supplied on your policy. This goes both ways. First, ensure you have sufficient coverage for your home and belongings in the event of a disaster, like a house fire. On the other hand, you don’t want to be paying a premium for $5,000,000 worth of coverage if you only have $1,000,000 worth of things that would need to be replaced. Look into optional coverage you might be paying for but do not need, such as flood insurance or sewer backup coverage. Do a quick audit of how much coverage you really need and make sure your policy limits align your requirements.
When it comes to home insurance, there is no one-size-fits-all approach. Your home insurance needs will vary based on the property itself – location, value, features like outbuildings or a swimming pool, age of the property, and even proximity to lakes and rivers. It is critical to have the right coverage and equally important to re-evaluate your needs each time your policy comes up for renewal. Finally, ensure your coverage keeps up with the inflation rate and your home’s current market value.