Alberta’s housing market varies greatly depending on where in the province you are located. Some areas have remained stagnant while other areas have experienced huge growth in prices. The real estate market can also fluctuate over the year or due to events like the pandemic.
If the market value of your home has changed, you may be wondering if your home insurance is affected. The answer is no, the Alberta housing market doesn’t affect your home insurance. This is because the market value of your home is not what is insured – it is the cost of rebuilding your home.
Market Value vs Replacement Value
The market value of your home is what your home could sell for or what it’s worth in the real estate market.
The replacement value of your home is the amount it would cost to rebuild your home if it was damaged or destroyed.
For example, if you take the exact same home in Calgary and Grande Prairie, they will have a similar cost to rebuild (with small differences in labour or material costs). However, if you were looking at buying the two homes, the one in Calgary would likely be more expensive than the home in Grande Prairie. This would be due to the different real estate markets in the two cities.
The bottom line is that the amount you pay for your home (or what you could sell it for) doesn’t impact your home insurance rates. It’s all about the replacement value (the cost to rebuild your home).
What impacts the replacement value of your home?
If destroyed by an insured peril, your home will be built as close to the original as possible. The only exception is to bring it up to modern building codes and bylaws. In cases where something is unavailable, a similar material or product will be used.
Here are some of the factors that can impact the replacement value of your home:
- Your home’s exterior finishes, interior finishes, roofing materials, flooring, features, and other aspects of your home.
- The cost of materials.
- The cost of labour.
- The cost of debris removal.
- Upgrading your home to meet current bylaws and building code.
As these costs can fluctuate year-to-year, it is important to review your home insurance annually and ensure your home is protected at its current replacement value.
Actual Cash Value Home Insurance
While we recommend our clients choose a replacement cost home insurance policy, some opt for actual cash value home insurance.
If you have an actual cash value home insurance policy, you should keep in mind that depreciation will be factored into your claim and you will need to cover more of the costs of rebuilding your home.
For example, if your roof was 10 years old at the time of your claim and it had a 20-year lifespan, you’d likely need to cover 50 per cent of the cost to replace your roof.
What happens if the replacement value of my home isn’t the same as the market value?
The market value and replacement value of your home may be drastically different numbers. Your home may be worth less than it would cost to rebuild, or it could be worth a lot more. In any case, the replacement value is the only number that matters for your home insurance.
How do I calculate the replacement cost of my home?
Your broker can help you calculate the replacement cost of your home. We ask you questions about your home and input the answers into a program that calculates the expected cost of rebuilding it. We’ll ask you about:
- Your address.
- The year your home was built.
- The number of bathrooms in your home.
- The number of kitchens in your home.
- The type of foundation your home has.
- The number of stories your home has.
- If the basement is developed or not.
- If you have a garage or not.
- The type of home you have.
- Your home’s exterior finishes.
- Your home’s square footage.
- Your home’s features.
- Your home’s plumbing, electrical and heating systems.
- Your home’s roof.
There are online calculators that can give you a rough estimate as well.
What if my home isn’t insured for its full replacement value?
Rising construction costs or renovations can impact your home’s replacement value. If you’re worried your home is underinsured, contact your broker.
If you have a claim and your home isn’t insured for its full replacement value, you will need to pay the difference out of pocket. That’s why it’s important to ensure you have the right amount of coverage.
Speak to your broker if you have any questions about replacement value or your home insurance. They can answer your questions and ensure you have the right amount of protection.