Photo: James Bombales

It’s no secret that Canadian home prices have increased dramatically over the past five years. Often, it’s assumed that a high mortgage payment or property value comes with equally high home insurance costs — but that isn’t always the case. 

In general, home insurance premiums have little to do with your home’s market value. But factors like your home’s location can affect the premiums you pay. For example, if your home is located in a flood risk area, you can expect to pay more for home insurance. 

Increasing home prices

Housing in Canada’s major cities is notoriously expensive. Back in 2000, you could purchase a detached single-family home or condo in Toronto for under $300,000. By 2017, the average detached home price skyrocketed to over $1.1 million and condo prices increased to just under $500,000. At present, Toronto condos are hovering around $540,000, while detached homes will run you close to $833,000.

From trough to peak, that’s nearly a 267 percent increase in the price of a detached Toronto home in just 19 years. Insurance premiums, on the other hand, have risen only moderately. In 2011, the best home insurance premium quoted to customers who compared rates on InsuranceHotline.com averaged $1,016 per year. In 2018, the best home insurance premium quoted was $1,302 on average – just under a 30 percent increase.

Factors that can affect your home insurance costs

Because you can’t use a home’s value to determine insurance costs, there are other ways to assess potential premiums. Calculating the replacement value of your belongings is a good place to start.

Photo: James Bombales

Assessing your home’s value: Renovations, repairs and purchases

Homeowners might have expensive belongings such as media equipment and smart devices in their homes. They might also have a state-of-the-art entertainment center in their finished basement. When you make renovations, repairs or upgrades, or even expensive purchases like new artwork, be sure to let your insurer know. You may need to increase your coverage limit to ensure you have enough protection if you ever need to file a claim. Your insurance company will do an  assessment of your property’s value to confirm that you are adequately covered. Your estimated replacement cost is the amount it will cost to rebuild your home in the event of a total loss. This differs from market value, which includes the value of the land. 

Other ways to determine premiums

Another way to assess premiums is to evaluate the types of risks and damages that could cause your rate to increase. These factors might include the potential for flood damage, fire or sewer backup. Owning a swimming pool, hot tub or fireplace may affect your premium. And having higher coverage limits (for example, if you own a lot of valuables) can also cause your insurance costs to increase. 

Additional ways to determine premiums include:

  • Deductible amount and policy liability limit.
  • The age and condition of the roof, plumbing and electrical.
  • A home-based business and insurance score.
  • The age of the home.
  • Your proximity to a body of water or fire station.
  • Your credit and claim history.  

Photo by Vidar Nordli-Mathisen on Unsplash

How insurance coverage has changed

The most significant increase in home insurance happened after 2014, and was attributed to higher claims costs from 2013. A year after major flooding hit Ontario in July 2013, insurance companies began to raise premiums for damage caused by water. This was due to the high volume of flood damage claims and increased costs for rebuilding. The Insurance Bureau of Canada reported that claims damages from catastrophic events totalled $3.2 billion nationwide — triple the annual average for five years. 

Insurer Intact Financial Corporation, the biggest property and casualty policy insurer in Canada, posted an underwriting loss in 2013 due to the weather disasters across Canada. They estimated premium rates would rise by nearly 20 percent, with water damage accounting for over half of the amount the company paid out in insurance claims. Insurer Aviva’s statistics show the average cost of water damage claims increased by 117 percent to more than $15,500 between 2002 and 2012. Unsurprisingly, extreme weather and climate change are to blame.

Rising insurance costs aren’t tied to property values, but damage caused by severe weather can raise your rates. Because Canadians are exposed to severe weather caused by climate change, looking for ways to mitigate risks should be a priority. The more you do to understand your coverage and take steps to reduce your flooding risk, the less damage, claims and repairs you’ll have to deal with in the future.

The high cost of housing can be tough for many Canadians, which is why it’s important to shop around online for the best home insurance policy. There may be more than one option available to you.

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