When it comes to purchasing a house or auto insurance policy, there are many things to consider, including the coverage you’ll need to help cover the cost of repairs or replacements in the event of a covered loss. Here’s a look at why less is not always more when it comes to coverage limits and personal liability.
Understanding your options and what is and isn’t covered
When purchasing house insurance, it's important to understand the limits of a typical policy. For example, in the event of a total loss caused by fire, depending on your coverage it may cover some or all of the cost of rebuilding your home as well as the items you own. But did you know that the policy may exclude sewer backup or earthquake damage, regardless of other damage coverage?
Fortunately, there may be coverage options for these outside-the-box situations. All you need to do is ask your insurance representative about “optional coverages” that may be available for purchase to help protect your home in the event of these types of losses.
If you're a renter rather than a homeowner, you should still consider getting insurance. Check out our article on the topic of tenant insurance to learn more.
Most people understand that auto insurance is mandatory because it will help to replace or repair your vehicle in the event of an accident. It also provides coverage for damage to other people’s property or injury to yourself or others. For example, if your car slides on ice and damages a guardrail, the liability portion of your policy will help cover this damage.
When it comes to coverage details, it’s important to consider what type of coverage you should get for your car. For example, collision, comprehensive or all perils (combination of collision and comprehensive). Regardless of where you live in Canada, drivers must have third-party liability coverage. Depending on the province or territory other mandatory coverages may apply. Optional coverages are also available depending on your individual needs. For example, ride-sharing, roadside assistance or coverage for transportation replacement are common add-on coverages.
Prioritize sufficient coverage, rather than cost
As explained above, third-party liability damages can get very expensive, which is one of the most important reasons to have adequate coverage. Many countries, including Canada, have laws regarding mandatory minimum liability coverage for auto insurance. However, there are options to increase the minimum amount. In the event of a costly accident, the minimum limit can fall short of covering the total amount of damages, and the responsible party may be required to pay for anything above the policy limit. Speak with your insurance representative to determine what is the right policy limit to select.
Now let’s talk about your house insurance. You should stay up-to-date on the amount your house is insured for. For example, your ten-year-old policy may show that the cost to replace your house is $300,000, when in reality, inflation, cost of materials and labour changes may make those actual costs reach around $500,000. You may have also made changes or additions to your house that may have increased its replacement cost amount. While increasing house insurance coverage may be more costly per month, this can help prevent out-of-pocket costs or expenses in the event of a loss.
Lower premiums aren’t always the best option when it comes to your home or auto insurance coverage. It’s important to discuss policy limits and additional add-on coverages with your insurance representative in order to select the right policy for you. With adequate coverage, you’ll have peace of mind.