19 home insurance myths, debunked

Reviewed by Daniel Mirkovic

Updated February 23, 2024

Despite an internet full of information, common home insurance myths still prevail among the public. You’ve probably heard some of them in your casual conversations: “insurance companies never pay out claims,” “I don’t need condo insurance because my condo corporation’s policy covers everything,” “I can’t change my insurance because I’ll have to pay a penalty.”

The sea of information (or misinformation) can seem overwhelming — but not to worry! We’ve compiled a list of 19 common home insurance myths to help dispel some of the inaccurate information out there.

A person staring in confusion at their laptop while biting a pencil

1. Insurance companies never pay out claims and take forever to process them

The claim experience is often emotional, especially if a claim is denied after someone’s home has suffered extensive damage. We hear much more about the claims that are refused than the ones that are handled smoothly and paid out. This gives the public the impression that insurance companies go out of their way to deny claims.

At Square One, we pay out over 90% of the home insurance claims we receive, and most are settled within 60 days. For smaller claims, such as a damaged laptop, we even have an express option where the insured is paid their settlement outright.

2. My all risk policy covers everything

Home insurance companies offer many types of policies, including all risk or comprehensive coverage. Many customers believe that because they have taken out insurance, every kind of loss or peril is covered. However, all insurance policies carry exclusions, which are losses that are not covered by their policy.

These exclusions are outlined in the policy wording or document. For example, Square One lists their exclusions in section 7 of their policies. Common exclusions include war and terrorism, fraudulent or intentional losses, or nuclear disasters.

If you’re not sure about your what’s excluded from your coverage, contact your insurance provider.

3. My premium will never go up if I don’t make any claims

It is true that people who have a history of not making claims usually pay lower premiums. However, an insured’s claims history is just one of hundreds of premium calculation factors that insurance providers use.

For example, if you install a shed in your backyard and want to add it to your policy, your premium will go up as a result. If you miss a payment, your premium could rise. The increased frequency and severity of natural disasters has also caused premiums to rise, since claims costs are shared amongst all insureds, not just those who make claims.

4. My condo is covered by my condo corporation’s policy

Many condo owners believe that their strata, condominium corporation, or syndicate’s master policy covers their unit against losses. The master policy certainly covers the building’s common property, and it does cover individual units — but only based on their original construction.

The corporation’s master policy does not cover any upgrades you make to your unit, such as the addition of granite countertops. It doesn’t cover your belongings, nor does it cover personal liability if a visitor were to be injured in your condo.

Condominium corporations can also issue loss assessments against individual units. A loss assessment means paying a portion of the master policy’s deductible, or covering shortfalls in their master policy’s coverage. You would need to take out separate condo owners’ insurance, such as Square One’s Condo Owners Protection, to be protected against these types of assessments.

5. Acts of God, like floods and earthquakes, are not covered

Many consumers want to know if their policy covers acts of God or natural disasters. However, you won’t see the term “act of God” in a home insurance policy.

In fact, home insurance’s primary function is to protect against what you might call acts of God: sudden, unexpected events, especially natural disasters.

Apart from coastal floods and landslides, you can get coverage for most natural disasters, including earthquakes and inland flooding. These are offered on an optional basis by some companies, while Square One automatically includes them for most of its customers.

6. I don’t need tenant insurance because my stuff isn’t worth anything

While tenant insurance is not mandatory, it covers more than just your belongings.

For example, if someone were to injure themself in your rental unit, you could be sued for damages and be forced to pay for your legal costs out of pocket. Tenant insurance provides personal liability coverage.

Square One also offers tenant’s protection coverage, which covers accidental damage you cause to your landlord’s property. Additionally, many landlords and property management companies require their renters to take out tenant insurance.

7. I don’t need tenant insurance because my landlord’s policy covers my stuff

Think again. Your landlord’s policy covers their property (appliances, fixtures, etc.), but you will need to take out a tenant insurance policy for your belongings (such as bicycles, laptops, or clothing) if you want coverage.

8. My home’s insurable value is based on its market value

Contrary to popular belief, home insurance is based on replacement cost, not market value.

Replacement cost is the amount required to rebuild your house on the same site. Given that, you don’t need to purchase the land again if your house burns down. Thus, the replacement value is almost always significantly lower than the market value.

Guaranteed replacement cost coverage will cover the full cost of rebuilding the home, even if this cost is above the policy limit. This coverage is important to consider, as the cost of materials and labour can be unpredictable. In addition, bylaw changes that have come into effect since the construction of your home can also inflate the replacement cost. Square One’s building coverage offers this protection.

9. I have to cancel my insurance if I move

Sometimes this is true, since you are moving to a completely different home which comes with its own set of risks, such as location, replacement cost, and materials. But, most insurers will let you transfer your policy as long as you meet their requirements.

At Square One, customers can buy a policy for their new home and cancel the policy for their old home through their online account. This will ensure that their belongings will be covered while they’re in transit to the new home.

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10. Home insurance is mandatory

Home insurance isn’t mandatory by law. However, most banks and mortgage lenders will require you to take out home insurance before granting you a mortgage loan. The same goes for tenant insurance: landlords can make home insurance a condition of the rental.

11. If I am forced to temporarily leave my home for a covered loss, additional living expenses will cover all my costs

Additional living expenses (ALE) is coverage for reasonable and necessary increases in your cost of living if you have to leave your home following a covered loss. So, if your home is damaged by a fire, ALE will cover the additional costs you incur to stay in a hotel, commute further to work, and so on.

However, this is not a licence to print money! It is important to remember that this coverage is for reasonable and necessary increases. So things that you would normally purchase, such as multivitamins or cosmetics, will not be covered, and you shouldn’t expect your insurance company to put you up at a five-star hotel. ALE is also only available up to the specified limit.

12. My home insurance covers damage from animals and insects

Most insurance policies do not cover damage caused by animals or insects, otherwise known as vermin. In fact, this is a standard exclusion in virtually any Canadian home insurance policy. This includes damage caused by animals like mice, skunks, squirrels, racoons, and insects like termites, ants, cockroaches, and bed bugs.

13. I can only cancel my policy at the renewal/anniversary date

Many insureds believe that their insurance works like a mortgage in that they must wait until their anniversary date to cancel their policy. Not true!

You can cancel your home insurance policy at any time. However, you may have to pay a cancellation fee, which is usually 2% to 8% of your annual premium. Check your policy or contact your insurance provider for more details.

Square One home insurance policyholders can cancel at any time and receive a refund of all unearned premiums with no cancellation fee. The only stipulation is that, aside from Quebec-based policies, the first $50 of premiums are non-refundable (known as a minimum retained premium).

14. I have to pay a penalty for cancelling my insurance

Not necessarily. If you cancel when your policy is due for renewal, there are no fees to pay as you will have paid off your entire premium. However, if you cancel before the renewal date, you may have to pay a fee amounting to 2%–8% of your annual premium.

You can also cancel penalty-free during your recission right. Insurance providers are required by law to give you a grace period (usually 10–15 days) in which you may cancel your policy with no penalty.

15. My insurance company can’t cancel my policy without my consent

A home insurance provider can cancel your policy at any time by providing the requisite notice — in most cases, that’s 15 days’ notice via email (if you accepted electronic communication) or registered mail.

Obviously, cancelling a policy means getting rid of a customer, so providers only do so with good reason. This could be for missed payments, frequent claims, or changes to the home that fall outside the providers underwriting guidelines. An insurance provider can also cancel your policy if it is shown that you made a false declaration during the application process, such as misrepresenting the age of the roof.

16. I don’t have to go all out maintaining or renovating my home because I have insurance to cover it

Just because you pay for home insurance doesn’t mean you have the right to let your home deteriorate.

Negligence is a key notion in insurance. For example, water could leak into your home if you fail to replace rotting roof shingles. In this instance, your insurance provider would not cover damage to your home because you neglected to replace or repair the rotting shingles.

Insurance covers sudden and accidental occurrences, not losses caused by wear and tear or lack of maintenance. So remember to paint that fence and clean those gutters!

17. Insurance premiums never go down

Insurance premium actually often go down, either because of something the insured did or something the insurer changed in their rate calculation.

The simplest way for an insured to lower their premium is by raising their deductible. In the event of a covered loss, the deductible is the amount that an insured must pay before their insurance kicks in. The higher the deductible, the lower the premium.

An insured can also save money on their home insurance by not making claims or bundling their home and car insurance. They may also see lower premiums by upgrading their home, such as installing storm shutters or replacing an outdated electrical system.

18. Insurance agents all work on commission

Insurance agents and brokers may or may not be paid commission.

There are two kinds of agents: captive and independent. Captive agents service policies on behalf of one insurance provider. That includes preparing quotes, explaining coverages, updating policies, and answering client questions. For example, Square One’s agents work directly for Square One (our agents do not work on commission).

Independent agents offer similar services to captive agents, but they can represent multiple companies and are paid a commission. In Canada, some provinces require that commissions be disclosed, while others do not.

19. In the event of a loss, I have to file my claim immediately or it will be denied

It is always recommended to file your claim as soon as possible. That way, your adjuster can help you get repairs started — quick repairs can help limit subsequent damage. It’s likely a condition of your policy that you report losses to your provider as soon as is practical.

Not to mention, the sooner you start your claim the sooner you’ll get a settlement.

Want to learn more? Visit our Home Insurance Basics resource centre for dozens of helpful articles to guide you through the ins and outs of home insurance. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.

About the expert: Daniel Mirkovic

A co-founder of Square One with 25 years of experience in the insurance industry, Daniel was previously vice president of the insurance and travel divisions at the British Columbia Automobile Association. Daniel has a bachelor of commerce and a Master of Business Administration (MBA) from the Sauder School of Business at the University of British Columbia. He holds a Canadian Accredited Insurance Broker (CAIB) designation and a general insurance license level 3 in BC, Alberta, Saskatchewan, Manitoba and Ontario.


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