Your Home Insurance Policy Explained

Homeowners’ insurance policies are not all the same as different types of coverage and policy limits vary from company to company. Usually your homeowner’s insurance policy is divided into three sections:

  • Section 1 – Property Coverages
  • Section 2 – Liability Coverages
  • Section 3 – Additional Coverages

It is important to understand that the coverage descriptions below may vary depending on the type of policy you have. It’s always best to verify your policy wording to make absolutely sure what is covered and what isn’t.

Section 1 – Property Coverages:

Dwelling – This is the limit for which your home is valued and insured. Your dwelling coverage applies to your home and attached structures such as a garage or carport. Permanently installed outdoor equipment on the premises, such as a swimming pool and the equipment attached to it, is included. A home evaluation needs to be done to obtain this value. It is not uncommon that the amount generated by the home evaluation is different from the real estate or market price of your home.

Detached Private Structures or Outbuildings – This usually equals 10% of the amount your dwelling is insured for (i.e.: if you’re dwelling is insured for $250,000, that would normally mean that your Detached Private Structures or Outbuildings would be covered for $25,000 which equals to 10% of $250,000). It provides coverage for detached garages, guest houses, sheds, pool houses, and most structures not attached to your house.

Personal Property or Contents – This coverage usually equals 60% to 80% of the amount your dwelling is insured for and includes coverage for damage caused to furniture, appliances, electronics, clothing and home furnishings to name a few. It is important to be aware of the specific limits of coverage for some items such as jewelry, coin collections, computer software, watercrafts, antiques, etc. If these items exceed the limit of coverage included in the policy, additional coverage can be purchased based on your needs.

Additional Living Expense or Loss of Use – This coverage usually equals 20% of the amount your dwelling is insured for and covers any expenses that you would incur. For example, if you suffer a water damage claim and need to temporarily stay in a hotel while the repairs to your home are being done, the cost to rent the room, laundry services, dry cleaning and food would be paid for with this coverage.

Section 2 – Liability:

Legal Liability or Personal Liability – This portion of home insurance applies at your home or anywhere in the world to bodily injury you may unintentionally cause to others – often referred to as “third parties” – or to accidental damage you may do to their property. For example, suppose a visitor were to be injured by slipping on a wet floor in your home, and you were judged to be legally responsible, you would be covered for the damages you were legally obliged to pay because of the injury.

Voluntary Medical Expense – This covers you if you or another member of your household injures someone else unintentionally (or even intentionally, if the injury is caused by a child 12 years of age or younger), you may compensate that person for the losses, regardless of whether you are legally liable, and your policy will reimburse you (check your policy for dollar limits). This coverage is standard in most homeowner policies.

Voluntary Property Damage – This covers you if you or another member of your household damages someone else’s property unintentionally (or even intentionally, if the damage is caused by a child 12 years of age or younger), you may compensate that person for the losses, regardless of whether you are legally liable, and your policy will reimburse you (check your policy for dollar limits). This coverage is standard in most homeowner policies.

Section 3 – Additional Coverage:

Sewer Backup/Water Escape – Covers loss or damage caused by water entering the insured dwelling as a result of accidental escape of water from a sewer, storm drain, drain, sump, septic tank, eaves trough or downspout.

Guaranteed Replacement Cost – Coverage that guarantees the home insured will be repaired to its full value at the time of loss, regardless of the amount of coverage carried.
Identity Theft Coverage – Identity theft is all types of crime in which someone steals or misuses personal or financial identifiers of someone else by using their credit card, driver’s license, social insurance number or other personal identification numbers to commit fraud or other criminal activity. Identity theft coverage will reimburse you for the following expenses associated with the theft of your identity:

  • Credit card and automated teller coverage
  • Lost wages as a result of taking time off work to get help
  • Legal fees
  • Registered mail and long distance telephone costs
  • Notary costs for affidavits and documents

Earthquake – This provides coverage for direct physical loss or damage caused by earthquake shock.

Home Based Business – This endorsement is designed to meet the insurance needs of individuals who operate a small business from their private residence. Coverages usually include business Property, money and securities coverage, extra expenses, loss of business income and liability coverage.
By-Laws Coverage – This provides coverage for the additional cost of demolition, construction or repairs as a result of an insured loss or damage, which is required to comply with any law regulating demolition, construction or repairs of the buildings.

Umbrella Liability and Excess Liability – is additional insurance coverage for losses that exceed the liability limit of the underlying homeowner, condo or tenant policy

Personal Article Floaters – covers your personal higher valued items that normally have a limit of coverage on your policy. For example, say you have a homeowner policy with a $1,000 deductible and a limit of $5,000 for jewelry and you have a ring worth $15,000 that is stolen, your policy would only pay you $4,000 for the ring because you have to pay the $1,000 deductible. If you decide to list your ring under a personal article jewelry floater and have it covered for $15,000 with no deductible, in the event that your ring gets stolen, your policy would pay out $15,000 or replace your ring with one of similar kind and quality worth $15,000.

Here is a list of available personal article floaters:

  • Boats
  • Jewelry
  • Furs
  • Antiques
  • Fine arts
  • Firearms
  • Coin collections
  • Computer Software
  • Stamp collections
  • Cameras
  • Musical instruments
  • Silverware
  • Sports equipment
  • Bicycles

Still have questions? Contact a member of the InsuranceHero.ca team!