House insurance is not a luxury, but a necessity. It doesn’t just protect your home and possessions from damage or theft, but almost all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property and will not make a loan or finance a residential real estate transaction without proof of it.

The basics of any kind of insurance can be daunting, so read on to understand what you need to know about house or home insurance.

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What does house insurance cover?

House insurance will cover three aspects: damage to the interior or exterior of your house, personal liability for damage or injuries and hotel or house rental while your home is being repaired.

If your home is damaged due to a fire, hurricane, lightning, vandalism, or other covered disasters, these are the common examples of what your insurance policy will cover. Your insurer will compensate you so your house can be repaired or even completely rebuilt. However, some things aren’t covered, like flooding, earthquakes and poor home maintenance and therefore will require a separate rider. Free-standing garages, sheds or other structures on the property may also need their own insurance using the same guidelines for the house.

Inside your home, clothing, furniture, appliances, and most of the other contents of your home are covered if they’re destroyed in a disaster covered by your policy. There may be a limit on how much your insurer will reimburse you, however. Usually this is covered 50 – 70 per cent of the amount your house is insured for.

Liability coverage protects you from lawsuits filed by others, even your pets. So, if your dog bites someone, your insurer will pay their medical expenses.

Although it is unlikely, there is always the chance of you being forced out of your home due to a disaster. Additional living expenses will cover your hotel or rent in another location whilst your home is being repaired or rebuilt – including your meals. However, it does have strict daily limits, so don’t expect a trip to The Four Seasons.

Some common exclusions when it comes to house insurance includes damage due to wear and tear or acts of war or terrorism. Plus, if your home is empty for more than 30 days during the year, you could also invalidate the policy.

The different type of coverage

Actual cash value covers the cost of the house plus the value of your belongings as they are worth today. Whereas replacement value policies will cover what you paid for your belongings and building, meaning that you can repair or rebuild to your home’s original value.

Guaranteed replacement cost is an inflation-buffer policy that pays for whatever it will cost to repair or rebuild your home, even if it is more than your policy limit. However, there is usually a ceiling of 20-25 per cent higher than the limit.

Advisers feel that all homeowners should go with the guaranteed replacement value policies so that you don’t need just enough insurance to cover the value of your home, but enough to rebuild your home.

Cost-cutting tips

A decent security system, like a burglar alarm monitored by a central station or that will contact a local police station will help lower your annual premiums, sometimes by 5 per cent. Smoke alarms will also reduce your annual premiums by up to 10 per cent in older homes. In more modern homes where a smoke alarm is a given, carbon monoxide detectors, dead-bolt locks, sprinkler systems and even weatherproofing can all help bring your costs down.

Just like health insurance or car insurance, the higher the deductible chosen, the lower the annual premiums. But the catch with a high deductible is that claims that are low/mid-level such as broken windows or leaky pipes will most likely be absorbed by the homeowner and they can add up over time.

Shop around for multiple policy discounts. Many insurance companies will give a discount of 10 per cent or more to customers who take out policies on other things such as auto or health insurance. And make sure to regularly compare and review your policy to know that you are getting the best deal. It doesn’t matter what initial price you were quoted; you should review your policy and make note of any changes that might have occurred that could lower your premiums. Check group coverage like credit or trade unions, employers, or association memberships to make sure you are getting a price you deserve.

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