If you're like most people, your home is your largest investment. You probably put a large portion of your money into the purchase of your home and it stores valuable belongings that you have earned over the years. You might eventually plan to sell your home and use the money for retirement. If not properly insured, all of that could be gone in a flash.
Being properly insured is a balance between being under insured or over insured. The following are five common myths surrounding homeowners insurance.
Myth #1: Insurance is a waste of money – I should only purchase the minimum insurance required.
Insurance is to protect you from a financial catastrophe if someone affected by you was to have an accident. If you don't have liability insurance or enough coverage, you could lose everything you worked hard to acquire and lose future earnings. If someone is paralyzed in an accident, then you could be paying for them for the rest of their life.
Myth #2: My homeowners insurance will cover all water damage.
Water damage caused by a storm or flood is different than water damage caused by a leak or pipe bursting. Water damage from a flood is similar to damage caused by other natural disasters and requires purchasing separate insurance. You may also be at risk if water damage was proven to be caused by improper maintenance, such as a leaky roof resulting from improper or inadequate weatherproofing. Keep all of your maintenance records and make sure you know what your policy excludes.
Myth #3: My insurance company will put me up in a hotel during repairs.
Does your policy include a loss-of-use provision? If not, then the bill could be on you for hotel, meals and other out-of-pocket expenses in case you are displaced from your home, quickly eating away at your pocket-book. If you are out of your home as a result of a flood or fire, the repairs could take a while and keep you out of your home for an extended period. Some insurance may have maximum per diem or restrict the amount of time you would be covered during repairs. Calculate how much money you would need to cover a hotel and expenses, and make sure your loss-of-use coverage can handle that. Keep in mind that insurance usually covers the cost over and above what you would normally spend; this is why it is commonly referred to as "Additional Living Expenses".
Myth #4: My contents are not worth much, as my furniture and clothes are all old.
In the event of an insurable loss, the insurance provider will pay for most items on the basis of replacement cost. This means they will pay for you to replace the lost item with new articles of a similar kind and quality, without taking a deduction for depreciation or time of use. Make sure your contents limit is adequate to purchase new items, and find out if there are any items you own that would not be eligible for replacement cost such as fine arts or antiques.
Ask yourself, "If I had to go out today and buy everything in my home new how much would I need?"
Myth #5: I bought a new home and paid for mortgage insurance, so my house is covered if it should burn down.
You are required to purchase mortgage insurance, but that is just to protect the lender if you should default on your mortgage from non-payment, or if you should become seriously ill and unable to make payments. If you were to lose the house to an accident or natural event, mortgage insurance doesn't cover the replacement or repair costs. You need to purchase homeowners insurance which will cover replacement costs, repairs and damaged goods inside the home. Stolen belongings are also covered with homeowners insurance.
Home insurance is a key requirement for your mortgage. The Auxilium Team is happy to provide you with a referral to our trusted partners for a consultation and quote.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
