Buying a home is one of the most important decisions you’ll ever make. In addition to worrying about closing costs and down payments, homebuyers often overlook one very important factor: the cost of homeowners insurance.
There are many factors that affect the cost of home insurance. Some are easily identifiable, such as the purchase price of the home and the property’s physical risk. Other factors are less tangible, such as the postal code.
If you are buying a home, these five important factors will help you understand how home insurance will affect your monthly bill.
Beware of Underinsurance
Underinsurance refers to not having enough insurance coverage to rebuild in the event of a claim. It is important to note that the cost of buying into the real estate market does not always represent the actual cost of rebuilding, especially in our current economic situation where building costs are rising at an unprecedented rate.
For example, a homeowner purchases a new home for $200,000 and, in the process, chooses an insurance limit of $200,000. The house burns down, and the cost to rebuild is $350,000. In choosing this limit, they insured 57% of the value of the home. Insurance policies have a co-insurance clause that is applicable to underinsurance, so in this case, they would only pay 57% of the $200,000 limit for a total of $114,000, leaving the insured vastly underinsured. This is why it’s extremely important to insure-to-value. Ask your insurance broker to complete a Replacement Cost Calculation when selecting your limits.
Ponder on Flood Insurance
Homeowners should think carefully about purchasing flood insurance. While the average homeowner may not face a flood risk, we have seen it more and more in Alberta (IE Floods of 2013) where unprecedented weather has affected homes in normally unaffected areas. A torrential downpour could clog drains and overwhelm water drainage systems resulting in floods in areas not normally associated with it.
Therefore, homeowners may want to consider adding flood insurance coverage to their homeowners’ policy.
Check the Property’s Location
The location of a property can dramatically alter the cost of home insurance. For example, those living in areas that are prone to wildfires or flooding may have to pay more for home insurance. These areas are often more susceptible to large and destructive weather-related events or may not have a fire station nearby.
Therefore, you should conduct a thorough review of your property’s location before committing to moving there.
Check the Property’s Age
The age of a property can also significantly alter its price. Older homes tend to be more expensive to insure than newer homes. This is because older homes are typically more likely to have factors that increase their risk. Some of these factors include the type of construction, the type of material used in the construction, and the location of the property.
For example, older homes may be at more of a risk for fire, flood, and weather damage. Therefore, the older the home, the higher the premium. Furthermore, many older properties may not have installed fire sprinklers. When buying a home, you should think carefully about the potential risks of living in an older property.
Buying a home is a major decision that can impact your life in ways that you may never expect. Homeownership is an exciting time but it does come with some risk, but you can limit this risk by purchasing a home insurance policy. If you think of securing an insurance policy now, you should consider all of the different factors that can affect the insurance premium, before you buy your new home.
Schwartz Reliance offers the best home insurance in Lethbridge that protects your home, and your personal possessions against different kinds of risks. Let us help you make sure that your home is protected. Contact us today to get started!