Home insurance — what do you need to know?

What is insurance?

This is a contract between you and an insurance company. It identifies your home, whether it is a townhouse or condo, and lists what contents are included in the coverage. If any of the property is damaged in one of the ways identified, you are entitled to claim the value of repairs or replacement up to the agreed maximum.

If you are the owner

Your home is the biggest single investment you will make during your life so it is important to protect your capital with adequate insurance. In this, remember you are only insuring the cost of rebuilding should the property be damaged. Always ensure all the structures on your land are included including detached garage, shed, and so on.

If this is a condo

There will usually be a policy maintained by the management association that you buy into to protect the structure. You may need to buy separate cover for accidental damage or improvements you make. Check the association’s policy and buy whatever cover is necessary to fill in the inevitable gaps.

If you rent

Check the terms of your occupation. You will certainly need coverage if your personal belongings are valuable. There may be a legal obligation to insure the physical property during your occupation.

Personal liability

No matter where you live, you should consider covering against the risk someone coming into your home is injured. For example, if you employ an electrician, and he slips and falls on your polished wood floor, all his medical expenses and loss of earnings while unable to work would be covered up to whatever maximum you set.

Is home insurance absolutely necessary?

It is usually a term of a mortgage that you insure the property. But, if you own the property outright or you rent, you could decide to carry the risk yourself. If you have enough cash to cover the cost of rebuilding your home, you would probably do better to invest it. Should a tornado or earthquake level your home in years to come, you can cash in your investment and rebuild. It is the same with the contents. If you have enough to buy replacement should the need arise, spending the money on insurance is an unnecessary expense. But it is advisable to produce an inventory of your contents. Actually replacing everything may cost more than you think.