We all love a deal but oftentimes the cheapest option isn’t necessarily the best one. This is why it’s important to understand the difference between home insurance coverages and how you will be affected in the event of a loss.
The different types of homeowners insurance coverage determine how much money you will receive in the event of a covered loss.
- Actual Cash Value
- What it covers: This will cover the depreciated value of your home and belongings at the time of loss.
- How it works: If a hailstorm damages your home’s roof and siding, the insurer will calculate the payout based on the cost to replace it, minus depreciation. This means that you may receive significantly less than what you originally paid for the home.
- Example: If your roof and siding was installed 15 years ago with a 25-year lifespan, the insurance company may only pay for 40% of the replacement cost. This means that you would need to pay for the rest of the damages out of pocket.
- Replacement Cost Value
- What it covers: The cost to replace your home and belongings without depreciation, up to the policy limit.
- How it works: If your home is damaged or destroyed, your insurer will pay the amount needed to rebuild or fix the damage at today’s prices, but only up to the policy’s stated limit.
- Example: If a tree falls through your roof during a storm, you get 100% of the cost of new roof, so long as it doesn’t exceed your policy’s stated limit
- Guaranteed or Extended Replacement Cost
- What it covers: The full cost to rebuild your home, even if it exceeds the policy limit.
- How it works: Extended replacement cost will pay up to a specific percentage above your policy limit. Guaranteed replacement cost will pay whatever it takes to rebuild your home with no upper limit.
- Example: If your home is currently insured for $600,000 and needs to be completely rebuilt after a fire, the insurance covers the entire amount — even if the cost of materials and labour significantly increases the price of the rebuilding costs.
Other Important Impacts to Consider
When building your home insurance policy, it’s easy to focus on the coverage limit for your house but it’s
important to remember that this limit can also impact other parts of your policy.
This can include coverage for:
- Outbuildings (garages and sheds)
- Personal property
- Additional living expenses (the costs incurred if you need to stay somewhere else due to a covered loss)
- Bylaws coverage (optional with some insurers)
Example: If your home is insured for $950,000, coverage for outbuildings, personal property, additional living expenses and bylaw-related costs will be set at specific limits based on that amount. If your claim exceeds those limits, you may need to pay the additional costs out of pocket.
Speak to a Specialist
Our expert advisors will work with you to develop a policy customized to your home and its contents. They’ll make sure to answer any questions you may have, so that you can feel comfortable knowing you are adequately covered if the unexpected happens.