We’ve had a run of crazy weather this year…and the several years prior, as a matter of fact. Last summer, it was wild wind and thunderstorms that uprooted trees in our neighbourhood. This winter, it’s been snowstorm after snowstorm, which have knocked down power lines and left us without electricity too many times to count. And each spring we worry about flooding again.
All of Mother Nature’s unpredictability makes me wary about our home’s safety…another Big One seems inevitable. We live in a mature neighbourhood with a lot of big, old trees that could do some serious damage if they ever fell over on someone’s house. Since we just finished some minor remodelling in the kitchen and the basement, I’ve been thinking about a piece of advice my father gave me just after we bought our first home.
He told me that my home was the most important asset I would ever own, and that I always needed to make sure it was protected. If we made changes, upgrades or renovations, we needed to revisit our insurance to make sure we were carrying enough coverage. Given that there’s no telling when the weather around here might turn apocalyptic, my husband and I pulled out our home insurance policy.
These are the three major questions we faced after going over our coverage.
What is the difference between “market value” and “insurance to value?”
Before we pulled out our policy, I had never even considered that there was a pretty significant difference between these two concepts. I figured that our home insurance policy covered our house and the items in it. It turns out that “market value” coverage and “insurance to value” coverage achieve that in two very different ways.
In basic terms, “market value” coverage protects your home for its projected current value, taking things like the neighbourhood, the condition of the property, the resale value of comparable homes and economic conditions into account. It’s more or less the amount of money you could expect to get if you put your house on the market.
“Insurance to value” is different — it is the amount of money it would cost to completely rebuild your home and replace all your possessions if your entire property was totally levelled by a cataclysmic event.
Here’s what it basically boils down to. With insurance to value, it doesn’t matter if your furniture is 15 years old and your pets and children have done a number of unspeakable things to them, rendering their value a tenth of the original purchase price, the fact is that if your home was destroyed you would need to purchase these items brand new.
Essentially, with insurance to value coverage, our belongings are deemed to be worth more than the fifty bucks I figure we could get on Kijiji.ca for it all right now. Which is what I always figured, stains and all.
What considerations should you make when deciding between market value and insurance to value coverage?
First, insurance to value coverage usually comes with higher premiums. But, at the same time, it also provides better protection. The most comprehensive kind of insurance to value coverage accounts for factors like inflation and labour costs, which have a direct effect on the projected cost of rebuilding your home.
We are always fiddling about with our abode, and custom-built homes and houses with unique features are better protected by insurance to value coverage. We were carrying market value home insurance, and I could hear my father’s voice in my ear urging me to get better protection, considering the small upgrades we just made in the downstairs rec room and the major ones we want to make in the kitchen.
All that said, market value coverage offers good protection, provided you cover 100 percent of the value of your home. I wouldn’t risk going lower.
How often should you reassess your home insurance coverage?
We got a very clear answer to this question after talking to our home insurance broker. You should reassess your coverage when your policy comes up for annual renewal, or anytime you make a major renovation or addition.
Personal Inventories and Home Insurance
Our home insurance broker also stressed the importance of doing an inventory to cover our personal belongings. Again, she told us to revisit our personal inventory any time we added something valuable to the home. We didn’t realize it, but the very basic home theatre we just added to our rec room in the basement was particularly vulnerable because it’s location near the water heater, which is ancient and may begin leaking at any time (and now at the top of “the list” of things to do). So we bought a very loud moisture detector to place near the water heater until we can get a new one, and raised the more expensive electronics well off the floor.
The lesson learned: don’t take your home insurance for granted. Understand the type of coverage you have, and picture yourself in a worst-case scenario. Would your current coverage protect you, or would you find yourself on the hook for major expenses?