Your home, whether rented or owned, represents a large financial investment, maybe even your life savings. And, no matter how well it is built or what construction type it is, it is still susceptible to fire, theft and other risks that could lead to financial ruin.

Home insurance protects you from having to potentially pay to replace all your personal possessions, including your home, in the event of a loss. It is a contract that allows you, as the policyholder, to substitute financial consideration (premiums) for a large, yet uncertain, future loss. With the security of insurance, you gain stability and peace of mind – you can pursue personal and family goals knowing that, should an unfortunate event occur that leads to loss, you are protected.

How insurance works

Insurance is based on the principal that the premiums of many pay for the losses of a few.  Insurers take the majority of the premium dollars that all of us pay and place them into a large pool. When claims occur, insurers pay these claims from that pool. Typically, as there are more people paying premium into the pool than there are people making claims, there is always enough capital to cover those unfortunate events.

When large disasters occur, these pools can become diminished. To protect against the pool being completely eroded, insurers protect themselves by purchasing their own insurance. This insurance is in place so insurers can always achieve their commitment to pay claims.

How premiums are calculated

Before insurers can determine how much to charge to cover your home, they must assess the potential exposure. Insurance representatives need to ask a number of questions about your home so the insurers can analyze the information to determine the likelihood of you making a claim and how much that claim may cost.

Certain factors are looked at when determining the premium you will pay for home insurance. For example:

Where you live – Insurers maintain historical records of information such as the number, type and cost of claims by postal code. They use this information to project the likelihood of claims occurring in the future. Depending on these figures, the cost of insurance can vary considerably from area to area or city to city.

Protection – Since fire is a main concern, insurers consider the proximity of your home to fire protection services.  Typically, the further away you are from those services the more premium you may pay. This is true when comparing Homeowners within city boundaries and those living beyond municipal and regional fire protection services.

Replacement cost – The size, level of finishing and value of your possessions can make considerable differences in the price of your insurance. The larger the home and the amount of contents, the more it will cost to replace.  Insurers use cost evaluators to help them determine value, along with input from you on the degree of finishing. 

Electrical wiring – Specific wiring (e.g. knob and tube or aluminum) can increase the exposure to loss such as fire. Some insurers will not insure homes with these types of wiring while others may provide a time limit on having the wiring inspected or replaced. In addition, insurers prefer electrical service that has been upgraded to a minimum 100 amp.

Plumbing – Since older plumbing (e.g. galvanized or lead) may be more susceptible to leaks and cracks, most insurers consider and recommend homes where plumbing has been upgraded to copper or plastic.

Heating – Insurers consider the type of heating you have to further identify risk. Homes heated by oil tanks and wood heat tend to be looked at more closely and additional questions around age, installation and government approvals are reviewed thoroughly. Since there is far less exposure with forced air and electric heat, this type of heating may result in savings.

Roof – Shingles are susceptible to wear and tear and different brands have different life spans. As a result, insurers typically inspect certain roofs older than 20 years before they decide to insure, not insure or apply certain restrictions on loss should a roof be worn.

Other uses of your home – Insurers will want to know if you have any renters or boarders, as more people in the home can mean more risk to loss. Further, they will want to know if you have any business operations and whether you plan to make major alterations, renovations or repairs.

If you have questions about homeowners insurance, please contact your broker.

--source: Falkins Insurance Group

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