Your home is probably one of the biggest investments you’ll ever make in your lifetime. That’s why it is so important to protect it with the correct type of home insurance policy. Home insurance helps provide peace of mind, as it protects you from financial loss if your property or possessions are damaged, lost, or stolen. It may also help cover your living expenses if your home is temporarily uninhabitable. In this article, we break down the three common types of home insurance policies: Named perils, broad form and all-risks. We list the home insurance pros and cons of each to help you decide which one may be best for you and your home.
What is a risk?
Simply put, a ‘risk’ is the cause of a loss or damage. Once the risks or perils have been detailed in your home insurance policy, you know what is covered and what is not.
What is a peril?
To an insurance company, a peril is defined as an event that occurs by chance that is unexpected, accidental, and causes a loss or damage. If someone were to unexpectedly vandalize your garage door and it requires repairs to clean and restore it, this event can be considered a peril. Regular wear-and-tear to a home, such as the gradual erosion of roof shingles or old pipes beginning to rust, are considered uninsured perils, as they are to be expected as time passes.
Home insurance policies as unique as you are
Before committing to one policy, it’s crucial to make sure that it caters to your unique needs. Home insurance policies should be designed with the individual homeowner in mind. The three most common types of home insurance policies are:
1. Named perils policies
2. ‘All Risks’ or Comprehensive policies
3. Broad Form policies
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1. Named Perils
A Named Perils Insurance Policy covers only what is specifically written in the policy. If the policy does not specifically state that a particular peril (event that can cause a loss) is covered, the peril – or the cause of loss – is NOT covered. Named perils are specific events mentioned in writing within the insurance policy. Damages stemming from a named peril can be covered if the peril occurs. Your insurance policy will provide the definitions of the damages covered.
A named peril can cover a variety of threats and risks. According to the IBC website, here are some examples of perils you can include in your policy:
- Fire
- Lightning
- Theft
- Attempted theft
- Windstorm
- Hail
- Rising water
- Earthquake
- Explosion
- Riot
- Damage to vehicle during transport
While a named perils policy can be a way to save money on premiums, the narrow coverage carries a substantial risk of suffering an uninsured loss. One uninsured loss can wipe out years of premium savings!
Important to remember
- Named perils home insurance policies only protect against perils listed in the policy wordings
- Named perils policies are usually the cheapest option, but offer accordingly narrow coverage
- Most homeowners need broader coverage than that provided by a named perils policy
If your home might be susceptible to damages that are not included in your home insurance policy, you will need to request that the coverage be added as a named peril to your home insurance policy. Therefore, it is important that you speak with an isure broker to discuss specific perils that may affect your home.
Uninsured Perils
Predictable events, such as the flooding of a home built on a flood plain, are not covered. The most common uninsured perils include:
- Flooding or water damage: Caused by floodwater (due to overflow from a body of water). Certain areas are prone to floods, so damage caused by flooding in these areas is considered predictable. Sewer back-up/water damage coverage may be purchased as an add-on to your existing policy.
- Landslides, earthquakes and other earth movements: While these events are not covered on a home policy, damage from a fire or explosion caused by earth movement will be covered.
- Damage arising from the freezing of indoor plumbing – This is generally regarded as preventable.
2. All Risks (Comprehensive) Insurance
When discussing the different types of home insurance, All Risk insurance is the second on the list that protects your home and property from “risks and perils.” It covers property damage or loss arising from accidents or unforeseeable incidents, except for those that are specifically excluded. An ‘All Risk’ policy covers just about everything except for specifically named exceptions. As it’s the most comprehensive type of property coverage available, it is also not surprisingly, the most expensive policy.
An All Risks policy will cover all Named Perils (mentioned above) in the policy, unless listed by you as an exclusion.
What isn’t covered by All Risks coverage?
It is quite common to have exclusions exist in this type of policy, despite what the name implies. Some of the most common exclusions are:
- General wear-and-tear: Would not qualify as a peril as it is predicted.
- Nuclear incidents
- War
- Damage as a result of acts of terrorism
- Pest damage (i.e. rodents and termites)
- Shifts in the earth causing issues, like cracks, in the foundation
- Pollution
- Market loss
- Mechanical breakdown: Also considered ‘wear-and-tear’
- Employee theft
- Boiler explosion
- Overland water (flooding)
- Earthquakes
Can you adjust your All Risks insurance plan?
In most cases, yes, you can adjust your comprehensive insurance plan. Many Canadian insurance companies are more than happy to provide additional coverage for specific risks and perils. It’s not uncommon for homeowners with comprehensive coverage to add perils, like overland water damage or earthquake coverage, to their policy. Doing this gives homeowners peace of mind, especially if they live in an area that is prone to specific natural disasters. Just know that this additional coverage comes at a cost!
Important to remember
- All Risks insurance coverage protects you from incidents that are sudden, accidental, and NOT specifically excluded within your policy
- All Risks tends to be more expensive, as it is the most comprehensive coverage available
- Changes can be made to your All Risks policy, however, they may come with additional costs
3. Broad Form Policies
You’ve weighed up the pros and cons of the previous two types of home insurance, but neither seems exactly right. A comprehensive policy costs more than you want to pay, and a basic or named perils policy isn’t suitable for your belongings. Perhaps the best option is a mid-priced compromise: the broad form insurance policy.
With broad form home insurance policies, the coverage you receive is divided between the dwelling and its contents:
- The dwelling is the physical house and any attached structure, such as balconies or a garage. Your property is covered against all risks, except those specifically excluded (terrorism, war, etc.).
- The contents are your possessions inside the house, including any furniture, electronics, clothing, etc. Broad form policies provide only named perils coverage for possessions.
If a power surge causes fire damage in your house and damages your electronic appliances, your scorched walls will be covered, but your electronics won’t be unless a power surge that caused the fire is listed as one of your named perils in the policy. If you want to insure your dwelling and do not have much of great value inside the building, you might consider a broad form insurance policy. As a middle ground between named perils insurance and comprehensive insurance, the cost of broad form insurance generally falls in between the two.
Purchasing home insurance can be complicated. By knowing your options and speaking with your isure broker about the different types of home insurance, you can rest assured that we will help you find the best policy.
