Have you ever looked at your insurance policy and thought that the building limit on your home was too high? If you were to sell your home tomorrow there is no way that you could sell it for the same price you are insuring it for. Are these insurance companies just ripping you off by selling you too much insurance that you don’t need? Believe it or not, there is a perfectly logical reason for insuring your home to a higher value than the market value.
The insurance industry in Canada widely uses ‘insurance to value’, or ITV, to assess your home and make sure that it is fully covered to the full replacement cost – i.e. what it would cost to rebuild your home after a catastrophic or major event such as fire. This cost also includes considerations such as availability of labor (may be harder to find laborers after a major disaster), removal of the old and damaged home, more demanding building codes , the higher cost of materials, etc. At HMS Insurance we use industry approved software to determine to most accurate building limit for each of our clients.
For example: Your 1970, one story, brick veneer, ranch might sell for $200,000 in today’s market. However, if you had to completely rebuild your home after a major disaster it would cost a lot more. The insurance company would have to pay to remove the debris, use today’s building codes , use brand new materials (not your old 1970’s materials), and use laborers at today’s going rate (not the 1970’s minimum wage). All these things add up and it’s important to have the correct coverage in place when you need it the most, and to build you a new house, not half of one.
Top reasons your building limit might be too low
- The insurance limit you used on your home was based on the mortgage or sale/purchase price, rather than the replacement cost.
- Changes in legislation and bylaws that affect rebuild methods and cost, such as fire safety, drainage and waste disposal.
- Neglecting to consider professional fees such as debris removal and labor costs.
- Failing to increase your limits after a major renovation to your home.
- Financial pressures that result in people asking for cheaper premiums at the cost of coverage.
If you think your building limit doesn’t present an accurate representation of your homes rebuilding cost, please contact your HMS broker to review your options. Perhaps a new evaluation needs to be done, or the broker can visit your property for current pictures and measurements.