What Exactly Does Your Home Insurance Policy Cover?

I recently received my home insurance renewal notice. The company I deal with merged (or was bought out?) by another company and the accompanying letter advised reviewing the policy to make sure I was getting the appropriate coverage.

Being obsessive that way, I did go through it with a fine-tooth comb. I don’t want to be disappointed if I ever have to make a claim.

Do you know exactly what your home insurance policy covers?

Are you planning a vacation this summer?

Since an unoccupied home is at greater risk of damage and susceptible to break-ins, you may not be covered while you are away. Coverage may only be provided for a certain number of days. If your house will be empty for longer than that minimum you will probably be required to have someone visit your home on a regular basis – generally every three to seven days depending on your policy.

What exactly does your home insurance policy cover?

Water coverage depends a lot on your policy

I was really glad to find out that I had been paying an extra $12 for extended water coverage (I didn’t actually pay attention to it before) when a major sewer backup flooded my basement. My neighbours – who assumed they were automatically covered – were giving me the stink eye when the clean-up and restoration crews pulled into my driveway and totally rebuilt my basement.

Typically, this coverage is for when water backs up into your home from a sanitary or storm sewer that overflows, or any accidental water seepage from burst pipes, for example.

Check to see what your limit is. If you did extensive and costly renovations to your basement, a $10,000 limit is not going to cut it for you.

What we think of as “flood” insurance – when water gushes in to your home due to a river or lake overflowing its banks – was not available in Canada until recently (2015). If you build your dream home five metres away from a babbling brook that triggers only a “hundred-year flood,” be safe and buy the optional coverage.

Home insurance doesn’t cover your home’s market value

Home insurance only covers the actual cost to repair or replace your home as it was before the loss.

Insurance companies will look at the overall maintenance of your home. You need to keep up with repairs. You are not usually covered if you have cracks in your foundation, loose window casements, or a leaky dishwasher that allow water to seep through.

Related: Our house insurance bill is up 30 percent!

They will take into account depreciation of your roof and garden shed, and the condition of that (dead) tree in your yard that crushed the neighbour’s gazebo.

You can’t say, “I hope there’s a big wind storm that knocks down my (broken down) fence so I can replace it with a nice new cedar fence.”

Personal property is almost always covered for replacement cost at today’s prices. Actual cash value will only pay today’s value for the item, prorated for age, use and condition.

However, you must actually replace the items and provide receipts. The insurance company won’t just hand you a cheque.

Condominium corporation insurance doesn’t cover your condo

This insurance covers the building structure, such as roof or windows, and common areas. It does not cover the contents of your own condo, or third-party liability if you cause damage to other condo units. You need your own separate policy. My condo corporation insurance has a $25,000 deductible if I cause any damage – so I made sure that this liability was included in my personal policy.

Likewise, if you are a tenant, your landlord’s insurance is not going to cover you. A lot of renters don’t bother getting tenant’s insurance – as you have probably noticed when you hear of a building fire in the news and the tenants have lost everything.

What’s personal liability protection?

Personal liability protection only covers accidental injury to other people on your property, or damage to another person’s property.

So, if you get sued by your neighbour after punching him in the face during an altercation – you are on your own.

Final thoughts

Home insurance is not regulated like auto insurance. In fact, unless you have a mortgage, you are not obligated to even have it.

Policies can differ widely and may not fully protect you. Sometimes you need to pay a bit more to add a rider to the policy for your valuables, or to protect against different risks.

Know what’s covered. What are the coverage limitations? Don’t assume that insurance will pay for all damages. Update your policy if necessary to best protect your property. It doesn’t make sense to reduce your coverage in order to save a bit of money.

Net Worth Update: 2017 Mid-Year Review

We’re nearly halfway through the year and so it’s time for my bi-annual net worth update and review for 2017. I was happy to surpass the $500,000 net worth milestone last year and, after paying off our car loan in October, looked forward to cranking up our savings rate and refilling our TFSAs this year.

Everything is going according to plan and we’re on track to meet our savings goals while not adding any new debt. That’s important because to reach my big hairy audacious goal of Freedom 45 our savings rate will need to remain high and we’ll have to avoid the evil temptation of lifestyle inflation.

We’ll accomplish this by keeping our big-ticket purchases in check. We built a house six years ago and plan to stay put for a couple of decades. Our vehicles are paid-off and we keep them in good shape – it helps that I live close to work and we put less than 20,000 kilometres per year (combined) on the two vehicles.

Getting the big things right means money left over to plough into different savings vehicles like our RRSPs, TFSAs, and the kids’ RESPs. We’re saving more than one-third of our income and that amount might be closer to 40 percent by the end of the year.

Net Worth Update: 2016 Year-End Review

Here’s a look at the numbers:

Net worth update: 2017 mid-year review

Total Assets – $822,862

  • Chequing account – $1,500
  • Savings account – $12,500
  • RRSP – $152,569
  • Defined benefit pension plan – $162,848
  • TFSA – $13,812
  • RESP – $29,633
  • Principal residence – $450,000

Total Liabilities – $248,566

  • Mortgage – $242,669
  • Home equity line of credit – $5,897

Net worth – $574,296

Now let’s answer a few questions about the way I calculate net worth:

Banking

We funnel all of our spending onto the Capital One Aspire Travel World Elite MasterCard. The card pays 2 percent back on every purchase and its new no more tiers redemption program makes it easy to cash in points.

We have no-fee chequing accounts at Tangerine, which we use for bill payments, email money transfers, and the odd debit purchase.

The rest of our banking is done at TD, including our mortgage, line of credit, and investments.

Pension

Each month I contribute roughly 12 percent of my salary to a defined benefit pension plan that my employer matches. The amount listed above is the commuted value of the pension if I were to leave the plan today.

The plan pays 2 percent of your highest average salary multiplied by the number of years worked. So that means if I retired at 60 with an average salary of $100,000 I’d receive $60,000 per year from the pension plan.

RRSP / RESP

The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.

My preferred method is to list the current value of my RRSP and RESP plans rather than discounting their future value to account for taxes and distributions.

I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP and distribute the RESP to my kids, net worth will decrease accordingly.

Principal residence

We bought our home nearly six years ago and, even though the market has gone up, I’ve continued to list the value at purchase price.

Final thoughts

Overall it’s great to see our net worth grow by more than $40,000 since the end of last year. One-quarter of that increase can be chalked-up to the surging stock markets – my RRSP portfolio is up 8.2 percent on the year.

The rest of the increase is due to good old-fashioned saving: $1,000 per month into the TFSA, $1,000 into my pension, $500 into the RESP, $1,000 onto the line of credit, plus the mortgage balance decreases by roughly $1,000 per month. It starts to add up quick!

At this rate we should be on track to reach a net worth of $625,000 by the end of 2017.

The two major measuring sticks I’m using for my longer-term planning are:

  • $1,000,000 net worth by 41
  • Financial freedom by 45

The million-dollar milestone is just that, a post I’m trying to hit on the way to financial freedom.

I plan to reach financial freedom by age 45 and what that means to me is the income earned from my investments and online business will be greater than our household expenses – a sign that I’d no longer have to work as a salaried employee. To get there we’ll need to pay off our mortgage and have a big, fat investment portfolio.

Each of these updates brings us closer to our goal, and the closer we get the more motivated we become to achieve it. How is 2017 treating you, financially?

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