Demystifying Insurance

Home Insurance Questions Answered

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Q: Why do pensioners get discounts on their home and contents policies?

A: Pensioners enjoy discounts on a wide variety of purchases, including many types of insurance. The discount on home and contents policies is usually five to ten percent, and companies offer discounts for a variety of reasons. One is because such discounts are a somewhat traditional perk of age. Another is because pensioners typically live on a lower income and tighter budget than other age groups.

However, the primary reason pensioners are granted discounts for home and contents insurance is because there is less risk to the insurance companies. Statistically, older people tend to be more careful with their belongings and take more measures to reduce risk: they install security systems, they make certain their smoke detectors are working properly, etc. When risk is reduced, insurance companies respond with lower premiums.

Q: If a neighbor's tree falls from his yard onto my house, fence, or other property, shouldn't his insurance company pay for the damage?

A: Not necessarily. Typically if your property is damaged, whether by a tree from your neighbor's yard, a baseball from the children's game in the street, or similar situations, then you contact your insurer and your own insurance pays for the repairs.

However, let's say you've been concerned about your neighbor's tree for some time. The tree was obviously dead, and you even pointed out to your neighbor that the tree should be taken out because it was a hazard. Your neighbor chose to do nothing, and sure enough, the tree came down and demolished the roof of your garage. In this case, the neighbor was negligent. He knew there was a potential problem and he didn't take care of it.

Under the condition of negligence, your neighbor's insurance policy will be responsible for the repairs. Even in this case, though, it's still best to go through your insurance company for help. Your insurer will work with the neighbor's insurer to make sure the repairs are handled.

Q: Is it better to insure my home and contents for the actual cash value or should I choose replacement cost?

A: Many homeowners struggle with these two options when taking out policies for home and contents. Actual cash value, which is standard on many insurers' policies, is a less expensive option than replacement cost. It will pay you what your home or contents are currently worth—the calculated value after depreciation is deducted from the original cost. If your belongings have been around for several years and you are hit by fire or another covered event, the cheque you get from the insurance company will be for the amount of what your current belongings were worth prior to the event. This amount may not be enough to replace your damaged goods with new ones. If it is the home that must be repaired, you may end up paying much of the cost out of your pocket.

If you choose the replacement cost option, your insurance company will pay whatever it costs to buy a new item to replace the old one you lost. You can take out full replacement, which pays the entire cost of replacing items. Or you can take out a set dollar amount, which may leave you to pay some of the replacement costs when you hit the limit on your policy.

If you carry a mortgage on your home, the mortgage company may not give you a choice on the option of actual cash value or replacement cost, at least on the building itself. Most mortgage companies require you to carry at least 80% replacement. If your home is destroyed in a covered event, you'll end up paying 20% of the cost to rebuild. To avoid potential financial stress,you can choose to pay the extra premium to get full replacement cost coverage.

Q: Why don't I have coverage for problems with my home's foundation slipping or cracking? Do I just have a bad insurance company?

A: All insurance companies exclude settling and other land movement that might damage your foundation. You may have coverage for this situation, though, depending on what caused the settling or movement. If you have cover for earthquakes, and that is what caused the earth to shift and cracked your foundation, then the insurance should repair the damage. Also, if you carry flood insurance and flooding caused the shift, you should be covered. For normal settling or movement of earth on a slope including landslides and mudslides, you're unfortunately out of luck.

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