Home ownership has many responsibilities - insurance may be number 1

Between running a household, work and ferrying kids back and forth, most of us are too busy to keep up with life's little details -- such as the fine print in a homeowner insurance policy.

That is, until disaster strikes -- as it did for Beach resident Malcolm Concannon. On a cold winter night, while he and his family lay sound asleep, fire broke out in the house next door, and spread rapidly to the homes on either side.

Thankfully, Mr. Concannon is a light sleeper -- he woke right away, roused his wife and son and got out of the house in time to cross the street and watch his home go up in smoke (the house pictured here is not his).

Getting out alive is where their good fortune ended. The next day, the insurance claims adjustor announced they were not fully covered, in spite of faithfully paying premiums since buying their home nine years before. Because the house had just undergone two years of renovations -- and reassessment had not yet been done -- they were eligible only for the amount specified in their original policy.

That's why it's important to read the fine print on your insurance policy. Companies expect homeowners to let them know as soon as they're doing major renovations because it affects the cost of rebuilding. Especially since in recent years -- what with increases in building materials and labour -- rebuilding has become more expensive.

Mr. Concannon now stands to lose thousands because of an assumption that the company would reassess once renovations were fully complete. Only the neighbours have benefitted from his lesson: "They're all calling their insurance companies demanding a reassessment to make sure they are fully covered," he says.

The frustration is palpable, and understandable: "It's not like we were trying to avoid paying the premiums," he says.

When it comes to insurance, though, the onus is on the homeowner to provide an accurate dollar figure for the home at the outset, and to keep the broker informed about any renovations and general improvements as they occur.

Brian Yetman, president of the 10,000-member Insurance Brokers Association of Ontario (IBAC), says the first step is to find a professional broker who is licensed and educated. "It may seem simple, but there are a lot of conditions that exist in policies, and brokers are intermediary bodies, independent of an insurance company, who work for the individual."

Mr. Yetman points out that while insurance agents represent only one company, brokers represent several, "so they're able to shop around for a policy tailored to individual needs."

Unlike automobiles, houses aren't required to be insured, though most have mortgages and lenders insist on coverage, Mr. Yetman adds.

Coverage falls into basic, broad, comprehensive, and no frills categories. Basic will save you money if you're OK with protection only for the risks -- or perils -- you name in the policy, such as fire, lightning, falling objects, impact by land or air vehicle, and a very limited wind or water coverage.

Broad coverage provides comprehensive protection for all risks on the building and named perils on the contents, so a set amount for jewellery, computers or furniture.

No frills is a policy for homes that are in such poor repair they don't meet insurance company standards.

If you live in a condo, insurance is required only for contents, upgrades you make to your suite, and living expenses in the event of fire. Otherwise, condos are covered under the condominium association's plan, but check the fine print. In some cases, the condo association insurance only covers bare walls, floors and ceilings and you are responsible for wiring, plumbing and cabinetry.

By far the least expensive coverage in the long run, Mr. Yetman says, is a comprehensive plan, which covers guaranteed replacement cost of rebuilding your home, liability, all contents, lodging allowance and all risks that are not specifically excluded.

But he adds that homeowners must disclose everything -- whether you work at home, what's been renovated, the type of electrical and plumbing. And make sure the limits of insurance are adequate, "since the cost to rebuild isn't always the same as you paid for the house."

That's not all that influences premium rates, however. Higher-risk areas where burglaries or flooding are common or old trees are ready to topple -- or being too far from the fire station -- will generally mean higher premiums.

Insurance is also affected by world events. "Rates are dictated by yesterday's claims," Mr. Yetman explains. Paying out damages after 9/11 left no capital in the insurance markets, and to compensate, policy premiums had to increase.

Climate change is another contributing factor: "Some people say it isn't real, but anyone in our industry would disagree," Mr. Yetman says. "It used to be one storm every summer, now it's several. Winters are marked by extreme freeze-thaw cycles, resulting in water that can't be absorbed into frozen ground, and running against houses or into overwhelmed sewers that back up."

Which is why water damage is now half of all claims, roughly double what it was a few years ago. As well, more basements, where most water damage occurs, are renovated than even a decade ago, and claim amounts are higher.

Thanks to this deluge of water claims, a basic policy is no longer enough to cover sewer back-ups, or leaks, and homeowners need to either go for comprehensive coverage that includes water damage, or add on a specified water "product," and most companies offer several options. But if you live in an area of constant flooding, even those policies may not be available, says Mr. Yetman.

But there's another reason rates are skyrocketing. "Assessing premiums based on an individual's credit score is driving up premiums," Mr. Yetman says. "That is, the worse your credit rating, the more you pay."

It's not fair, he adds, and the IABC is asking for a government ban on the practice. "We're concerned for the poor, single income families, immigrants -- those who can least afford it -- and some rates have increased as much as 80%."

He suggests probing further with your insurer, if this has happened to you.

The good news is, there are ways to drive down your rates, according to Henry Blumenthal, vice-president and chief underwriter of TD Insurance in Montreal. Install smoke detectors and security systems, and keep your home well-maintained -- new roof and furnace, repair any cracks or leaks. Bundling insurance policies -- auto and home from the same company -- could reduce your premiums considerably. Being claim-free for several years, increasing your deductible, and having a completely non-smoking household are some ways to also reduce rates.

In addition to insuring the house, most policies cover outbuildings (garages, sheds, or extensive landscaping that includes decking), personal belongings (jewellery, furniture, clothing) and loss of use (to pay for lodgings if your home is uninhabitable).

It's worthwhile to look into increasing personal possessions coverage -- you have more than you think you do -- and there's usually a cap on replacement of jewellery. To ensure you get proper replacement value, Mr. Blumenthal suggests taking a video of each item and keeping that in a safe spot.

That could easily be another regret of Mr. Concannon's. When he went through the house with the adjuster, only items in the basement were recognizable (even though they had stood in a metre of water from the firefighting efforts) including golf clubs belonging to him, his wife and his son. Rather than replace those, they opted to plough their value into rebuilding.

He's hoping to reach an agreement with the insurance company in order to build their new home. But some of their most valuable items cannot be replaced, especially family photos. And if Mr. Concannon were to do it over again, he says he'd invest in a fireproof box, because no amount of insurance money can replace those most personal of possessions.

("Going, Going, Gone" prepared by Alex Newman/National Post)