How to Buy Home Owner’s Insurance

home owner's insuranceIf you’re a first time homeowner or a tenant or a seasoned homeowner, then you need to buy home owner’s insurance. Purchasing insurance for your primary home, apartment or vacation home is similar is a must if you want to keep your property, structure and personal belongings safe in case of an unforeseen event.

As a financial planner I can tell you that a lot of people think that buying insurance is a waste of money.  Students who rent may think of insurance as just another monthly expense that they can’t afford.  If you have a home, apartment, condo or cottage and you don’t have insurance, you shouldn’t be asking yourself if you can afford to purchase insurance.  The question you should be asking is can you afford not to buy it?

Why do you need insurance?

Home owner’s insurance helps refund the costs to repair your home if should be damaged due to a fire, flood or vandalism.  It also helps replace your personal items if they should be lost or damaged due to theft, fire, flood or vandalism.

Just think about how much it would cost to replace a lifetime of personal belongings.  Imagine if you lost everything from your clothes to your couch – are you in the financial position to replace them all, could you afford to buy all new stuff?  The answer for many people is no.  That’s why you need home owner’s insurance.

How much home owner’s insurance do you need?

Since the purpose of home owner’s insurance is to cover the replace cost of your home and everything in it, you need to purchase enough to cover the cost of replacing your property if it should be damaged and nothing more.

If you purchase too much insurance i.e. over the value of your belongings, then you’re paying too much money and at that point having insurance does become a waste of money.  As far as the structure goes, when you talk to a licensed insurance agent they will recommend a type of insurance policy depending on the structure of the home and the age of the building – among other things.

What type of insurance do you need?

It’s nice to be protected, but you don’t want to buy too much insurance or types of insurance that you don’t need because that money can be better used on things you do it.  One example is all perils insurance.  If you don’t have expensive art, jewellery and furnishings that need to be insured then you wouldn’t buy that type of insurance.  A licensed agent will help determine which type of insurance is best for your needs.

Insurance policies can be comprehensive or basic.  Comprehensive basically covers all of your belongings and the structure under all situations possible.  Exclusions are acts of God and usually acts of terrorism.  Of course this is the most expensive kind of insurance.  Basic insurance is just that, it’s a lot less coverage (and may be best for students who don’t have a lot of stuff) and it’s more affordable.  If neither one of these types of insurance fits your needs, you can purchase a hybrid policy i.e. you may need basic coverage for your personal belongings and comprehensive coverage for the structure of your home.

Now that you’ve decided which type of insurance policy you need and how much insurance you need it’s time to decide on the details of replacement costs.  There are two options: cash value or actual cost.

According to Insurance Hotline a cash value insurance policy refunds the cost of you item if you were to sell it at the time of loss.  This is also known as market value and it takes into account the depreciation of the item.

Actual cost is the exact opposite, and the more expensive option of the two.  Actual cost insurance refunds the entire amount of the purchase price of the item, regardless of how old it is or when you bought it.


About the author


TK is a Certified Financial Planner with over 15 years of experience in the banking industry. She started blogging in 2009 after the market crash. TK enjoys helping people plan their retirement, pay off debt, invest wisely, live on a budget and enjoy happy financial lives. You can see what she's up to on Twitter @TahnyaKristina.

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