Common types of home insurance
A home insurance policy generally protects both your house and its contents in the event of loss. But it’s important to remember that there is no such thing as a ‘one size fits all’ policy. Remember, your policy does have exclusions, make sure to be familiar with them.
- When comparing coverage, be sure to read the descriptions carefully.
- Even if different insurers use the same or similar terms for insurance packages, pay attention to what is included or excluded: don’t assume they are automatically the same.
- Make sure you understand the exclusions and dollar limitations.
Here are the three most common types of policies.
All Risks Coverage
- This type of policy and coverage insures both your home and its contents for all of the most common types of loss.
- Instead of naming which risks are covered (fire, theft, etc.), a Comprehensive package will list what is excluded. All of the exclusions will be spelt out in your policy.
- All Risks is also sometimes referred to as All Perils coverage.
Named Perils Coverage
- This coverage names the specific type of perils that your home and belongings are insured for. Unlike All Risks coverage, which identifies what is excluded, a policy with this coverage lists what is included.
- Named Perils may also be referred to as Designated Risks coverage.
All Risks and Named Perils
- This type of policy offers a mid-range compromise: a combination of All Risks coverage for your home, and Named Perils coverage for the contents.
Common Features of Home Insurance Policies
Actual Cash Value
- Unless your policy indicates otherwise, the contents of your home are insured for Actual Cash Value (ACV) – that is, the value of the item, less depreciation.
- For example, if the $12,000 home entertainment system you bought five years ago was destroyed by fire, you might only get a few thousand dollars today, regardless of what it costs now to replace it with something of similar quality.
- Because Actual Cash Value is standard in most home insurance policies, many people choose to add optional Replacement Value coverage (see Beyond Basic Coverage for more information).
Detached buildings on your property
- Many home insurance policies will also cover “detached private structures” on your property for a specified amount.
- This includes different types of buildings on your property that are not attached to your house – a garage or tool shed, for example.
- If the specified limit is too low, you always have the option of buying additional coverage.
- The Personal Liability portion of a home insurance policy is also sometimes referred to as “Third-Party Liability.”
- If you are found liable (legally responsible) for injuring someone (a third party) accidentally, or for damaging their property unintentionally, this coverage will protect you from having to pay damages.
- Liability insurance will also cover you in the event you are responsible for an accident away from home, anywhere in the world.
Here are a few examples of how personal liability insurance will protect you.
- Someone slips and falls on your stairs, is injured and can’t work: you are found liable and have to pay for their lost wages.
- One of your children accidentally throws a ball through the window of your neighbour’s home and breaks an expensive antique: you are responsible and have to pay for it.
- You accidentally injure someone on the tennis court, golf course or softball field, and have to pay for their medical costs.
Beyond your home and belongings, a home insurance policy can also provide coverage for a variety of unforeseen and potentially costly situations.
Here are some of the situations covered in many home policies.
Additional living expenses
- This will cover your additional expenses if you are forced to leave your home temporarily as a result of damage by an insured peril (fire, smoke or water damage, etc.).
- Usually, it will cover additional reasonable and necessary costs – lodging and food, for example – up to a certain limit.
- Voluntary payments provide coverage if you unintentionally injure another person, or if they are accidentally injured on your property; it also provides coverage for unintentional damage to another person’s property. These coverages are available even though you are not legally liable.
How voluntary payments for medical expenses work:
- Reasonable medical expenses incurred within one year of the accident will be paid, up to a specified limit, if you unintentionally injure someone, or if they are accidentally injured on your premises.
- Medical expenses include surgical, dental, hospital, nursing, ambulance service and funeral expenses. The coverage does not include your medical expenses or those incurred by anyone who lives with you, or medical expenses that are already covered under plans, laws, insurance contracts or Workers’ Compensation.
How voluntary payments for damage to property work:
- This coverage will pay for unintentional direct damage you cause to another person’s property, up to a specified limit.
- You may also use this coverage to reimburse others for direct property damage caused intentionally by an Insured minor (12 years of age or under).