Mackay Insurance Blog
Canada is an undeniably stunning country. We are rich in natural beauty, with a whopping total of 44 national parks to enjoy nationwide!
But most Canadians know you don't have to visit a national park site to relish our wondrous landscape—which also explains our zeal for owning seasonal second homes, often known simply as "cottages."
In fact, many Canadians are so keen to own a cottage they would be willing to cut their spending, go in with others to make the purchase, buy a "fixer-upper" place, or even just buy the land now and save to build on it later.
But once your dream cottage is finally yours, you also need to make sure you protect it. That is where knowing how to choose the right type of insurance policy is essential.
As the warm season approaches, these tips can help you evaluate your existing cottage insurance policy or select a new policy for the cottage you just purchased. If you find you have questions or need help picking a policy, we are happy to be of assistance!
Key Questions to Ask Yourself
If you have just bought your first cottage, you may not be sure yet how to answer some of these questions. But your answers will be important to determine what type of insurance and how much insurance you need, so think through these questions.
How often do you plan to visit your cottage?
If you plan to visit the cottage every weekend during the warm season, you may find your insurance premiums are lower than if you visit only occasionally. This is because you will be able to keep a much closer eye on your cottage and perform minor maintenance before a small issue turns into a big issue.
Do you plan to rent it out to other tenants?
Different insurers have different approaches when a cottage owner wants to list their seasonal property for rent. In most cases, if you have a fire alarm installed and you have a local person who is willing to check on the property before and after each short-term tenant visit, you will find coverage to be more affordable (although still higher than if you are the sole occupants).
As well, if you plan to rent to only people you already know, you may pay lower premiums than if you plan to rent your cottage out to strangers.
Some insurers place a cap on the number of weeks per year that a cottage owner can rent out their property, while others do not. In some cases, choosing a commercial insurance policy rather than a residential secondary home insurance policy will give you the coverage you need to earn extra rental income on your cottage and enjoy peace of mind that you are properly insured.
Do you intend to keep your cottage open year-round?
Insurers typically offer lower rates to cottage owners who have year-round road access to their cottage. This is mainly because of fire risks. If a cottage catches fire and there is no way to get to it during the cold season, claims will be much higher.
Of course, if your cottage doesn't have a road that is accessible year-round, you may still be able to get lower rates if you can find someone who lives in the area to check on it during the cold season. Installing a fire alarm can sometimes also help keep rates more economical.
Will your cottage serve as your primary or secondary residence?
In most cases, cottage owners declare a cottage as a secondary residence at least until they retire. In this case, often cottage owners will choose to add the cottage to their primary residence insurance policy as a seasonal or secondary residence.
If you do declare your cottage as your primary residence, you will have the usual tax advantages, as with any primary residence. In this case, you would need a full homeowner policy rather than a seasonal property policy.
Rider Options for Your Seasonal Insurance Policy
Most seasonal cottage insurance is issued on a named perils basis as opposed to all-risks coverage that is available on a comprehensive (primary residence) insurance policy.
The term "named perils" means there is a list of specific perils you are purchasing insurance to cover, such as fire, smoke damage, theft, or vandalism.
Depending on your cottage location and unique situation, adding on these riders may also make sense:
Animal damage. Large, hungry wildlife such as bears or small, hungry wildlife such as raccoons can inflict a surprising amount of damage on an unattended cottage.
Water or flood damage. Burst water pipes or sewer pumps or flood damage typically isn't covered in a standard seasonal cottage policy, but it may be available for an additional premium.
Cottage contents insurance. If you plan to leave certain high-value items at your cottage (rather than taking them back and forth with you, which would keep them covered under your primary homeowner's policy), you may want to purchase additional contents insurance coverage.
Recreational vehicles or watercraft. If you plan to store boats, jet skis, off-road vehicles or other recreational-use vehicles at your cottage, talk to your broker and be sure they are correctly insured.
Storage sheds or detached spaces. If you have additional storage units or shelter sites for boats or off-road vehicles, check to be sure your seasonal insurance policy offers sufficient coverage for these as well.
Contact Mackay Insurance for Help
Cottage insurance, like any other insurance policy, comes with its own terminology and learning curve.
While it can take some time to understand the ins and outs of this specialized insurance product, the ongoing peace of mind you get from buying the right policy that fully protects your cottage investment is literally priceless.
Contact us for help today!
If you can imagine it happening to your home, there is a good chance it can happen. This is what the home insurance industry is all about.
Home insurance exists for one reason: to protect the single biggest investment most people ever make.
Buying home insurance is not a legal requirement in Canada, but if you have a mortgage, the mortgagee will require that you insure the home. Whether or not you have a mortgage, the possibility of losing perhaps your largest asset is too great a risk to assume—thus, virtually everyone who owns a home carries insurance on it.
Not all home insurance policies are equal. In this article, learn about the four main types of home insurance policies and how to know which is right for you.
Type 1: Comprehensive Policy
If you are looking for the best coverage for both your house and the things inside it, you are looking for a Comprehensive policy. Not surprisingly, this is typically the priciest type of home insurance policy. In simple terms, both your house and most typical contents people have in their homes are insured against “All Risks.” This means they are covered for anything that could happen to them, unless a “peril,” or type of loss, is excluded on the policy.
All insurance policies, even the most complete policies available, have some things that are not covered. For example: if you intentionally damage your own things, or if war breaks out, there is no coverage. With a Comprehensive, or All Risks, policy, it is important to review the things that are “not covered.” The good news with a Comprehensive policy is that if a peril is not on that “not covered” list—then it is covered.
In some cases, you can purchase additional insurance policies or riders to cover some uninsured perils. Flooding, earthquakes, and sewer damage are examples of uninsured perils that can potentially be covered under additional policies or riders.
Other uninsured perils are simply not insurable, such as terrorism, criminal behaviour on the part of the policyholder, or home issues deemed to be the result of maintenance left undone.
Most of the common perils are not excluded on a Comprehensive policy, and again, if it is not excluded, it is covered. Though you will not see a list of what IS covered, common things like fire damage, theft of contents, smoke damage, water damage from a burst pipe, lightning strikes, wind or hail damage, and vandalism are not excluded and are therefore covered.
Type 2: Broad Policy
A Broad homeowners insurance policy gives you the same All Risks coverage on your house as a Comprehensive policy does. The only difference is that the coverage on your contents is reduced to “Named Perils” coverage. This type of policy is generally a little less expensive to purchase than a Comprehensive policy.
What does this mean for your belongings in your house? In simple terms, the policy will have a list of Perils that your contents are insured against. If a peril, or a cause of loss, is on that list, then there is coverage. However, if a peril is not on that list, then there is no coverage.
The list of perils that a policy like this covers your contents for is actually quite broad. Many of the common perils, like fire and theft, are covered on either a Comprehensive policy or a Broad policy. However, consider something unusual—for example, a deer wanders into your attached garage, becomes confused, and enters your house when the door opens (this has happened!). Once inside, it becomes disoriented and damages your contents before it finds its way back out. Is the damage it causes covered?
Under a Named Perils policy, it is covered only if one of the listed Perils is “damage caused by a deer.”
Under an All Risks policy (Comprehensive), it is covered—unless there is exclusion removing coverage for “damage caused by a deer.”
That is the difference in a nutshell between All Risks coverage and Named Perils coverage.
Now, the above example of the deer in the house is an unlikely situation. In practice, the more common perils are covered under either a Comprehensive or a Broad policy. Because of this, the price of the two policies is often quite close.
If you are presently insured on a Broad policy, you should check with your broker if you qualify for a Comprehensive policy and what the additional premium would be. You might be pleasantly surprised how little it costs to move from a good policy (Broad Form) to the best policy (Comprehensive Form)!
That said, a Broad policy could be a great solution for a cottage that is more like a second home, where the concern is more about getting the best available coverage on the building than on the contents.
Type 3: Basic (Named Perils) Policy
As its name suggests, a basic homeowners policy is one that outlines precisely what is covered. The coverage that is provided on both the building and the contents is “Named Perils”—a peril has to be on the list of what is covered or there is no coverage.
This type of policy may be a good fit for homeowners who are willing to take on some financial risk in return for a lower premium payment. It may also be the best coverage available on a second home or an older building.
Type 4: No Frills Policy
A no frills policy is a policy designed for “special needs” houses—in other words, houses that have some type of structural defect or issue that would ordinarily make them ineligible for home insurance.
If you own a property of this type, such as a fixer-upper that you are working toward restoring or flipping, a no frills home insurance policy can protect it until you repair it and it qualifies for regular home insurance. This type of policy is sometimes called a “Basic Fire policy” because the perils that are insured are limited to fire damage and a few other very basic coverages.
Additional Home Insurance Coverage You May Need
Even if you opt for a Comprehensive policy, you may still need additional coverage depending on your home’s geographic location, high-value personal possessions, and/or a home-based business.
Sewer or septic back-up coverage usually must be purchased as a separate coverage. If your home is situated in an area that has a high risk of flooding, you will likely want to purchase additional flood insurance.
High-Value Personal Property
Also, if you have valuable items (stamp collection, jewelry, artwork, furs, vintage antiques, etc.) at your home, your regular home insurance typically will cover these items only up to a certain value. You will want to talk with your broker about a rider to cover these items.
If you run a business out of your home and store equipment, supplies, or inventory there, be sure to talk with your broker about adding coverage for these items as well.
You may also want to take out a business insurance policy separately to cover the needs of your business.
Actual Cash Value Versus Replacement Cost
Your homeowners insurance policy will pay a claim according to one of two different methods. Regardless of which policy you have, it is important to know which method your policy will use.
Actual Cash Value. This method reimburses you for damage or loss based on the actual value of the item at the time it was damaged or lost.
Replacement Cost/Value. This method reimburses you for damage or loss based on what it would cost you to repair or replace that item based on current prices.
Not surprisingly, it will cost you more to have your house and possessions covered based on replacement cost/value. But if the unthinkable happens and your home is destroyed by an insured peril, you want to be sure your coverage will be sufficient to rebuild your home and replace your possessions.
How to Choose Your Home Insurance Policy
Before you assume you can't afford as much coverage as you truly need for total peace of mind, don't forget that there are ways to get discounts on your premiums. Give our knowledgeable insurance experts a call. We can help you find the best coverage to suit your needs. As brokers, we work with many different insurance companies and will help find you the best coverage that is available within your budget.
Home insurance offers you the protection you need for times when unexpected tragedy strikes, but it can feel like such an unnecessary expense year after year if you’re not getting anything out of it. Nevertheless, it is not smart to get rid of it!
Fortunately, there are steps you can take to reduce the cost of your insurance premiums to affordable levels. Look for ways to save before you make a commitment.
1. Know What You Need
Homeowners’ insurance will pay to rebuild your home if it’s destroyed, but it can also pay for many other things. For instance, it could also cover the medical bills of someone who got hurt on your property or repair a roof that was damaged in a bad storm.
To get the right coverage, you need to know what things you do and do not need covered. For example, if your home has no risk of flooding, there’s not much sense in you paying for flood insurance.
However, those who live in older homes may need to consider additional coverage. The typical insurance plan does not include older details like wide-planked floors and stained-glass windows.
2. Shop Around
You probably already know you should shop around to get the best deal, but it’s time-consuming to go through the same set of questions with each insurance provider. Many people contact just a few of the top insurance companies and choose the cheapest one.
When you work with an insurance broker like Mackay Insurance Brokers Inc., we do all of the hard work comparing policies for you.
3. Read the Fine Print
Carefully read through the things that your insurance does and doesn’t cover. This is the only way you can be sure that you’re comparing apples to apples when you look at different policies. It’s also a great way to find add-ons you don’t think you need or potential trouble areas.
At Mackay Insurance, we know policies can be overwhelming. You don’t have to do this alone! We can help you prevent any negative insurance claim surprises, determine exactly what coverage you need, and find policies that meet those specific needs.
4. Increase Your Deductible
The quickest way to decrease your premium costs is to increase the deductible on your plan. Sure, you might not want to spend $1,000 to meet the deductible when you need repairs, but many people find it an easy trade-off, especially when you consider how unlikely it is that you’ll file a claim.
Ask to see how a higher deductible affects the annual premium before you make a decision.
5. Ask for Discounts
Insurance companies frequently offer a wide range of discounts. You might get a discount for working for a particular company, having good grades, belonging to a certain organization, having several smoke detectors in your home, or sticking with the same company year after year.
Talk to us about which discounts you may be able to qualify for.
6. Bundle Your Insurance
If you get all of your insurance from one company, you may be able to get a discount.
In addition to getting basic quotes for house insurance, ask about including auto or life insurance in the package. In many cases, the discount will be worth choosing the same company.
However, you do need to take the time to compare plans separately as well. For instance, if you recently filed an auto insurance claim, the insurance rate will probably be lowest at the company that currently holds your policy, and bundling might not get you a good deal.
Again, as your broker, Mackay Insurance can do the work of finding the best bundle for you.
7. Make Home Upgrades
Insurance companies determine their premiums after analyzing the risk of damage to your home. If you’re in an older home, the outdated electrical system makes a fire more likely. By hiring an electrician to upgrade the system, you’ll be able to reduce the cost of your insurance.
You’ll see similar reductions in home insurance premiums when you add safety features such as an alarm system or a bigger fence around the pool.
8. Improve Your Credit
Surprisingly, your credit score can also play a role in how much your house insurance costs. While you can’t do much about your credit score right now, improving it could mean you’ll get a better rate next year.
Make sure you pay your bills on time, reduce the amount of debt you carry, and check your credit report for fraud.
9. Reassess Your Plan Annually
Your needs change, and your insurance coverage should change accordingly. Each year, make a plan to compare policy premiums from a few different companies and check whether you need more or less coverage. For instance, if you’ve added a pool or bought a play set for the kids, you’ll probably need to increase your coverage.
If you quit smoking or filled in your in-ground pool, you may be able to reduce coverage. Rates can also increase or decrease based on things like neighborhood crime, changing weather patterns, or hitting retirement age.
When you work with Mackay Insurance, we can make sure you’re covered and saving money according to your changing needs.
10. Get More Advice About Reducing Costs
A qualified insurance broker is the best person to advise you on reducing your insurance costs. He or she will be able to look at your specific policy and make some suggestions. This personalized advice will make a big difference in your situation.
Mackay Insurance has been helping people find the right coverage for the best price since 1977. Let us make the insurance process stressless and affordable. Contact us to find out what your needs are and to help you compare your options.