You need to protect your condo investment by having adequate home insurance and avoid the pitfalls of having a claim denied. Here is a basic overview of the common insurance jargon you will encounter, and information that you should know to save money and grief. This will help you in your decision-making.
Inflation allowance
This coverage protects you against inflation by automatically increasing your amounts of insurance during the term of your policy, without increasing your premium. On renewal, the insurance company will automatically adjust your amounts of insurance to reflect the annual inflation rate. The premium you pay for your renewal will be based on those adjusted amounts of insurance.
Inflation allowance coverage will not fully protect you if you make an addition your building or if you acquire additional personal property. This is why you would review your amounts of insurance every year to make sure that they are adequate.
Special limits of insurance
The contents of your dwelling are referred to as “Personal Property.” Some types of personal property insurance such as jewellery, furs and money have “Special Limits of Insurance.” This is the maximum the insurer will pay for those types of property. If these limits are not sufficient for your needs, you can purchase additional insurance.
Your policy automatically includes some additional coverage to provide you with more complete protection. Each of the individual types of coverage that are included is listed under the heading “Additional Coverage.”
Insured perils
A peril is something negative that can happen, such as a fire or theft. Some policies protect you against only those perils that are listed in your policy. Other policies protect you against “all risks” (risk is another word for peril). This means you are protected against most perils.
All insurance policies have exclusions. Even if you have selected “all risks” coverage, this does not mean that “everything” is covered. It is important that you read the exclusions carefully in order to understand the types of losses that are not covered by your policy. For example, floods, earthquakes, etc. may not be covered if you reside in a high-risk location for these types of perils.
Loss or damage not insured
This is the “fine print” – the section that tells you what is not covered. They are also known as “exclusions”. Exclusions are necessary to make sure that the insurance company does not pay for the types of losses that are inevitable (ie. wear and tear) uninsurable (ie. war) or for which other specific policy forms are available to provide coverage (ie. automobiles).
Basis of claim settlement
This section describes how the insurer will settle your loss. It’s the real test of the value of your policy and the reason why you purchased insurance.
Replacement cost
You should purchase replacement cost coverage for your property. This is particularly important for your personal property (e.g. the contents of your dwelling and personal effects). Otherwise the basis of settlement will be “actual cash value” which means that depreciation is applied to the damaged property when establishing the values. You therefore would get less money, possibly considerably less.
“New for old” coverage is available. All you have to do is ask for & replacement cost coverage” and then make sure that your amounts of insurance are sufficient to replace your property at today’s prices.
Guaranteed replacement cost.
This is one of the most important types of coverage available to a homeowner. You can qualify for this coverage by insuring your home to 100% of its full replacement value. If you do, then the insurance company will pay the full claim, even if it is more than the amount of insurance on the building. Make sure this is shown on your policy.
The Guaranteed Replacement Cost coverage applies only to your building – not your personal property
There is usually an important exclusion. Many insurance companies won’t pay more than the amount of insurance if the reason the claim exceeds that amount is the result of any law regulating the construction of buildings. Check this out.
Deductible.
There is a deductible and the amount is shown on the Coverage Summary Page of your policy. It means that you pay that amount for most claims, for example $250 or $500. The insurance company pays the rest.
As you can imagine, the cost to investigate and settle a claim can be considerable, often out of proportion when the size of the claim is relatively small. These expenses are reflected in the premiums you pay. By using deductibles to eliminate small claims, the insurance company can save on expenses and therefore offer insurance at lower premiums.
