On this page
- Why you need to update home insurance
- How to update your coverage
- Types of updates you can make to your insurance
- Let’s discuss the cost implications of updating your insurance
- Common mistakes to avoid when updating your home insurance
- Conclusion for how to update home insurance
When was the last time you reviewed your home insurance policy?
Unfortunately, many homeowners see their home insurance policy as something to set up and forget. What they don’t know is that home insurance can quickly become inadequate due to changes in lifestyle, major purchases, and renovations.
In fact, most Canadian insurers warn that major renovations or unreported structural changes can leave you underinsured, or worse, void your coverage altogether.
To help you ensure your home and everything in it stays protected, we’ll discuss some reasons and the best time to review your home insurance policy.
Why you need to update home insurance
Your circumstances and your home are ever-changing. Over time, many factors will influence or change the risk and value associated with your home.
When you experience such changes, adjusting your home insurance should be the first task on your to-do list. Let’s look at some common changes most homeowners experience.
1. Home renovations and additions
Insurers base your home’s coverage on its replacement costs, and not its market value or the amount you originally paid.
That’s why renovations can significantly raise your home’s repair or replacement costs. Suppose your dwelling coverage remains unchanged even after major renovations, you could end up being underinsured and unable to restore your home if an accident occurs.
2. Major purchases
Aside from renovations, making a major purchase is another event that would warrant a home insurance adjustment. This is because many home insurance policies have limits on personal property coverage, and you may be left underinsured when you exceed those limits.
In fact, some homeowners even assume their personal belongings are always insured. You should note that a purchase of costly items needs to be explicitly added by your insurer.
3. Aging home or changing property value
Even without renovation, the cost to rebuild often changes due to fluctuations in the labour market, price of building materials or scarcity, and building-code changes. If your policy coverage limit stays the same every year, inflation and an increase in construction costs might leave you underinsured.
4. Change in lifestyle and major milestones
Most households start small and increase in number over time. With this increase comes major phases like child-rearing, an increase in number and value of personal belongings, etc.
Suppose you discover new income streams, you may need to convert a part of your home into a home office or working space for a home-based business. These changes often come with increased risks, hence the need to always adjust home insurance coverage.
How to update your coverage
Home insurance adjustment is really not a complex process. It’s mainly about taking the necessary steps to ensure you don’t end up underinsured…or overinsured.
The first step is to get in contact with your insurance provider or broker the moment you anticipate a major change, like renovation, employment, or a major purchase.
Involving your insurer so early may feel inconvenient, but just remember that it’ll help you avoid the risk of coverage gaps while your home or lifestyle changes.
Often, failure to disclose substantial changes is considered a “material change” and can lead to denial of future claims or even coverage cancellation.
After notifying your insurer, you might need to provide documents like recent renovation receipts, building permits, or even a professional appraisal to help your insurer reassess the replacement cost.
Some insurers may recommend digital tools to help you estimate rebuild costs, while others may send an adjuster or require formal documentation of changes.
Another major step is to document all new purchases, along with their receipts and photos. If there are any high-value items among your new purchases, you should add a scheduled or endorsement policy to ensure they’re adequately protected.
Adding pools, big rental rooms, or a home-based business would mean a change in your home use. In such cases, raising your liability protection or adding specialized coverage is advisable.
You may also want to reconsider your deductible. A higher deductible may lower your premiums, but only if you’re confident you can cover the excess in the event of a claim.
Finally, once the changes are agreed upon, ask your insurer for written confirmation, and don’t forget to review the updated policy terms carefully. This is to ensure they reflect the new dwelling value, contents coverage, liability limits, and any additional endorsements.
Types of updates you can make to your insurance
Usually, the process of updating your insurance only requires you to make adjustments to the affected coverage and not the entire insurance policy. Some common adjustments homeowners request when updating their coverage are:
- Dwelling coverage increases. It reflects an increased replacement value after structural renovations.
- Contents or personal property addition
- Liability coverage adjustment, especially if you’ve added features like a pool, rental suite, home office, or you now have more family members around.
- Additional living expense (ALE) enhancement: This home insurance adjustment ensures that you have adequate coverage for living costs if you must temporarily vacate your home after a covered loss
- Add-ons or special endorsements: They are used for specific risks not covered by a standard policy, such as sewer-backup, water damage, home-based business coverage, or upgraded building code protection. These add-ons let you adjust your policy more closely to your needs.
Let’s discuss the cost implications of updating your insurance
By now, you probably can tell that updating insurance coverage isn’t free; in fact, it has significant cost implications.
However, adjusting your insurance policy is often a worthwhile trade-off when compared to potential losses that could occur when you’re underinsured. A very typical cost implication is change in premiums.
Basically, if your dwelling coverage increases, you’ll likely see a corresponding increase in premium. In fact, to add content to home insurance is to raise your premium.
Increasing liability limits may also raise your premium. On the other hand, a higher deductible translates to lower premiums, but also greater expenses on your part if you file a claim.
On the bright side, not all changes increase premiums. Some investments actually reduce risk and may earn you a discount.
Upgrading electrical wiring or plumbing, replacing an old roof, installing smoke detectors, fire alarms, security systems, or adding sump pumps or backflow preventers may make your home safer and cheaper to insure.
You need to understand that underinsuring your home can have serious consequences. Suppose an accident occurs, and your home coverage isn’t adequate, you may only receive partial compensation.
Worse yet, if your insurance provider concludes that you failed to disclose substantial changes, they may deny claims or even void your policy.
Common mistakes to avoid when updating your home insurance
As transparent as most home insurance policies are, many homeowners still trip up when carrying out a home insurance adjustment.
One common mistake is delaying disclosure of renovations or forgetting to document your new home value or renovation details.
The danger in this mistake is that without receipts, permits, before-and-after photos, or an updated appraisal, your insurer may be unable to verify the increased replacement cost, or they may offer limited coverage.
Some other common mistakes include overlooking high-value items and assuming your old policy automatically covers new risks.
Conclusion for how to update home insurance
Your home is one of the biggest investments you’ll ever make, and the gap between what your home is worth and what your policy covers can widen significantly while you’re focusing on other affairs.
That’s why it is very important that you ensure your home insurance policy evolves alongside your home and lifestyle. At the very least, you should review your home insurance policy once a year even if nothing obvious has changed in your home.
To ease the burden during any update, always keep a detailed record of all renovation documents. The advent of home inventory tools has also made it easier to track your home’s contents, especially after significant purchases.
It’s also advisable to seek professional advice based on your specific region. Updating your home insurance may cost a little more than expected, but the financial security and confidence it offers far outweighs the risk of being underinsured.