The Ultimate Guide to Home Insurance Deductibles in Canada
By Arthur Dubois | 30 Sep 2022 |
A home insurance deductible is the amount of money you pay out of pocket if you make a claim. When it comes to selecting the right policy, it’s vital to understand how much the deductible is, how it affects your premium and what will happen in the event of a claim.
When you’re comparing quotes for home insurance, the amount of the deductible included in the quote will have an effect on the cost of premiums. Here’s everything you need to know about home insurance deductibles.
What is a deductible?
A deductible is an upfront payment you must make in the event of a claim. An insurer almost always includes a deductible in a home insurance policy. It helps to keep every client’s premium as low as possible. Insurance providers design deductibles to deter policyholders from making small frequent claims, which ultimately drive up the price of premiums for everyone.
As an example, if you make a claim for damage to your property amounting to $10,000, and you have a policy with a $1,000 deductible, you will pay the first $1,000 and the insurance company will pick up the additional $9,000 of cost.
But if you have damage to your property that is less than the deductible amount, you won’t be able to make a claim.
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Do all policies include a home insurance deductible?
Almost all home insurance policies in Canada include a deductible. Most companies give you a choice of deductible amounts. Deductibles range from $500 to $5000, but the most common range is $500 to $1000.
A very small number of companies apply a deductible that is a percentage of the claim rather than a fixed amount. Home insurance deductibles tend to be higher than auto insurance deductibles. The reason is that it’s simply less expensive to repair a vehicle compared to a home.
The insurance industry uses many years of statistics from many areas to determine what is reasonable and fair in setting premiums. The industry is also very competitive, which also helps to keep premiums on the lower side.
In some circumstances, insurance companies apply different deductibles to certain types of claims. Particularly where there is a higher risk due to location or the type of intended use of the property.
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Some examples of different deductible clauses are:
Crime Deductible
This is common in situations where the homeowner rents out their home or owns a vacation property. These types of situations are at greater risk of burglary and vandalism. Therefore, specific coverage for these situations is crucial. Not all standard home insurance includes coverage for renting or vacation property. The deductible amounts generally range from $2,500 to $10,000.
Earthquake Deductible
If your property is in a region at risk from earthquakes, then your insurer may insist on a separate deductible payable in the event of earthquake damage. They may offer you a choice of deductible that can range from $2,500 to $200,000.
Read more about Which Natural Disasters Should You Insure Yourself Against in Canada?
Glass Breakage Deductible
This pertains to claims for glass breakage which is part of your home. Some insurers will allow you to eliminate this deductible in exchange for a small increase in your premium.
Inland Flood Deductible
If your home qualifies for inland flood insurance, the deductible will apply in the situation of an inland flood. Insurers typically include sewer backups in this form of insurance. The deductible amounts can range from $2,500 to $25,000.
Hail Deductible
Some areas are at greater risk for hail damage. If your home insurance includes this protection, the deductible would apply to a claim from a hailstorm. Hail can damage everything from roof shingles to skylights and eavestroughs. The insurer often sets the deductible amounts around $5,000.
Selecting the right deductible amount for you
It’s best to set your deductible amount on the higher side if you can. This is especially true if you have emergency savings you can use if you need to make a claim on your home insurance policy.
This will keep your insurance premium lower and save you money. It also shows your insurance company that you do not intend to use your policy for unnecessary and small claims. Your insurer can then offer you a lower premium because you are unlikely to make an excessive number of minor claims.
But it’s also important to be realistic about what you could afford to pay in the event of a claim, bearing in mind that your circumstances might change in the future. Don’t be tempted to choose a high deductible simply to save a bit on your premium. Especially if you have limited amounts of savings.
If an insurer offers you a choice of deductibles between $500 and $2000, we would suggest that $1000 is the best option. This is because choosing a higher deductible doesn’t usually result in a huge saving in the premium, compared to the extra money you would have to find yourself in the event of a claim.
Avoid making a claim, if you can
Bear in mind that you don’t have to make a claim if you have damage that is above your deductible by a small amount. Submitting a claim to your insurer can result in any claims-free discounts that you benefit from being removed, which means you will pay a higher premium at renewal.
If you were to submit a high number of claims, your insurer may charge you an additional amount, called surcharges. Also, your insurance could be declined by the insurer. It’s much better to manage your insurance premium with a reasonable deductible amount and avoid small claims altogether, whenever possible.
Changing your deductible
Most insurers will allow you to change your deductible. They may allow you to change it anytime, or some may only allow for the amount to be changed at the time of policy renewal, such as 12 months after setting it up.
Comparing premiums and deductibles
The market is very competitive. So we recommend that you always carry out a comparison of what is available every time you renew your insurance. It will often reduce the amount you pay in premiums. As well as reducing the amount of deductible you need to include.
FAQ About Home Insurance Deductibles
When you compare home insurance policies in Canada you will normally be offered a choice of deductibles. Typically this will be between $500 and $2000. Choosing a higher deductible will result in a lower premium. If you need to make a claim, you will pay the amount up to and including the deductible, and the insurance company will pay the rest. Any repair costs below the deductible will not be covered by the policy.
It’s very important to select a deductible that you can realistically afford. Using a credit card or line of credit could be a practical solution in the short term. However, they result in interest charges and can become expensive if not paid off soon. Lines of credit can often have lower interest rates than credit cards, making them more appealing. Remember, if you have to make a claim, your deductible will need to be paid somehow. Some insurance companies insist that the insured pay their share of the costs, i.e. the deductible, before they will pay out the balance.
Normally the deductible amount of any repair costs will need to be paid by you directly to the contractor carrying out the work.
The most common range of deductibles offered by home insurance companies in Canada is between $500 and $2000. The average deductible applied to policies is $1000.
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