Home Insurance for Houses in BC: What Your Policy Covers

When you buy a house, you insure the whole building yourself, and the policy you choose decides what happens after a fire, a burst pipe or an injury on your property. Here is what a typical home policy covers, the gaps that catch owners out, and how to have the right coverage in place for your lender on completion day.

The short version

What a house policy covers

Home insurance isn't mandatory by law, but most mortgage lenders require it. A policy on a house you live in generally has five parts:

• The dwelling. The house itself.
• Outbuildings. Detached structures such as a garage or shed, with some limitations.
• Contents. Your belongings. Valuables such as jewellery or antiques may need a floater, extra coverage beyond what the basic policy includes.
• Additional living expenses. The extra cost of living elsewhere, above your normal expenses, while your home is unlivable after an insured loss.
• Personal liability. Bodily injury or property damage you unintentionally cause to others, up to your policy limit, including legal defence costs for a covered claim. It doesn't cover injuries to you or your household.

Policies come in levels: comprehensive covers the building and contents against all risks except those excluded, named perils covers only the perils listed, and broad covers the building that way but contents only for named perils. If you are buying a condo, the strata insures the building; I explain how your own policy fits around it in Condo Insurance in BC.

Replacement cost or actual cash value

Your dwelling coverage should match what it would cost to rebuild the house if it were destroyed. That can differ from its market value and its property assessment, and the land itself isn't insured. How a claim is paid depends on your policy:

• Replacement cost. Pays to repair or replace with something similar, up to the limit in your policy.
• Guaranteed replacement cost. Pays to repair or rebuild the house even if the cost goes over your limit. Most policies require you to rebuild on the same site to get it.
• Actual cash value. The depreciated value, after deducting for age, use and wear. If you take a cash settlement instead of rebuilding on the same site, a policy typically pays on this basis.
• Bylaws. Rebuilding to current bylaws can cost more, and a bylaw endorsement sets out how your insurer handles that, so ask whether you have one.

An example with made-up figures: a storm damages a roof that would cost $20,000 to replace, and your deductible is $1,000. On a replacement cost basis, you would receive $19,000. If the claim were paid at actual cash value and the insurer depreciated the roof by 60% for its age, you would receive $7,000 and pay $13,000 yourself, not $1,000.

Water damage and other gaps

A policy treats water differently depending on where it comes from:

• A sudden escape of water. A comprehensive policy generally covers the sudden and accidental escape of water from plumbing, heating, sprinkler or air conditioning systems, from domestic appliances or from a water main, such as a burst pipe.
• Sewer backup. Water backing up through sewers and drains is typically covered only if you add sewer backup coverage, an optional add-on.
• Overland flooding. Water from heavy rain, spring thaw or an overflowing river or lake is another optional add-on, where an insurer offers it. I explain flood risk and coverage in Floodplains and Flood Insurance.
• Gradual damage. Wear and tear isn't an insured peril, because a policy isn't a maintenance contract. If a roof at the end of its life leaks, the damage inside may be covered, but the roof itself would not be.
• Freezing. If you are away for more than four days in the heating season, the Insurance Bureau of Canada says you need to drain the plumbing or have the home checked regularly or daily, or freezing damage is likely excluded.

Earthquakes, landslides and other earth movement are generally excluded too, though fire or explosion caused by earth movement is covered. I explain the earthquake add-on in Earthquake Insurance in BC. Fire itself is covered by all standard homeowner policies, unless you set it on purpose.

When the house sits empty

Insurance policies often distinguish an unoccupied home, where your belongings are still there but you are temporarily away, from a vacant one, where everyone has moved out with no intention to return, or no new occupant has moved in.

• More than 30 days. A short trip usually doesn't need a call, but the Insurance Bureau of Canada says that if your home will be unoccupied for more than 30 days, you are required to let your insurance representative know.
• Coverage that needs occupants. Some coverage, such as for certain vandalism and glass breakage, may apply only while the building is normally occupied.
• Common situations. Moving out before your sale completes, a long renovation, a gap between tenants or an estate waiting to be settled can all leave a house empty. Call your insurer before it happens.

BC's Insurance Act adds a broader rule: a statutory condition in every property policy requires you to promptly tell your insurer in writing about a change that is material to the risk and within your control and knowledge. If you don't, the contract is void as to the part affected by the change.

Suites, tenants and rentals

Talk to your insurer before a tenant moves in, and keep a written record that you did. The Insurance Bureau of Canada warns that failing to fully disclose who lives in the home may void your policy.

• Your household only. A standard homeowner policy covers you, your spouse and your dependants, not your tenant's belongings or liability.
• Tenant insurance. The Insurance Bureau suggests your rental agreement require tenants to insure their belongings and liability, and to show proof every year.
• Landlord coverage. It can replace lost rent if tenants must move out after an insured loss, and cover defence costs if a tenant or guest sues you.

I explain the rest of the setup in Buying a Home with a Suite.

Older houses

Insurers want to know what has been updated in an older house, especially the electrical, plumbing and roofing:

• Wiring. Knob-and-tube or aluminum wiring, or a service under 100 amps, can lead an insurer to require updated wiring, a 100-amp service with breakers or an electrical inspection.
• Pipes. Galvanized steel and lead pipes are more likely to crack and leak, and upgrading to copper or plastic can lower the cost of insuring the home.
• The roof. Insurers generally prefer a roof updated within the last 20 years.
• Heating. A wood stove can affect whether coverage is available and what it costs. I would also mention any oil tank, in use or removed, even if no one asks.

I cover what to check, era by era, in Buying an Older Home in BC.

Insuring the house you are buying

Line up coverage before you remove subjects, not in the week before completion:

• Quote the actual house. Answer every question about its age, updates, suite and heating, so a coverage problem comes up while your offer is still conditional. An insurance subject gives you that time; see Subject Clauses in BC.
• Start on the completion date. Under the standard BC contract, the house is at the seller's risk until 12:01 am on the completion date and at yours after that, so have your policy start then. Sellers should keep theirs until after the buyer takes possession.
• Name your lender. Most lenders require you to buy coverage, name them on the policy and give them proof of insurance, and CMHC notes that property insurance must be in place on the day you close.
• Know the mortgage clause. Under the standard mortgage clause, a claim payment is generally made to you and your lender together, and if the insurance is less than your mortgage, you still owe the balance.

Questions buyers often ask me

Is home insurance mandatory in BC?

Not by law, but most mortgage lenders require it, ask to be named on the policy and want proof of coverage. If you own the house outright, it is your decision.

Does home insurance cover water damage?

It depends on the source. A comprehensive policy generally covers a sudden and accidental escape of water, such as a burst pipe, but sewer backup and overland flooding are optional add-ons, and wear and tear isn't covered.

How much should I insure my house for?

For what it would cost to rebuild, not its market value or assessment, since the land isn't insured. Ask whether guaranteed replacement cost is available and what conditions come with it.

Do I need to tell my insurer about a basement suite?

Yes, before you rent it out. Not disclosing a tenant may void your coverage, and your policy won't cover your tenant's belongings or liability, so ask tenants to carry their own insurance.

What if my house will be empty for a while?

Tell your insurer if it will be unoccupied for more than 30 days. In the heating season, have someone check it regularly or drain the plumbing, as your policy requires, or freezing damage may not be covered.

Getting ready to buy a house? See what to budget beyond your down payment, plan your dates with From Offer to Keys and use the moving day checklist to time your policy.

This article is general information, not insurance or legal advice. Policies differ, so read your own wording and talk to a licensed insurance agent or broker about your coverage. The details come from the Insurance Bureau of Canada, BC's Insurance Act, CMHC and BCREA, and were current at the time of writing. For the Insurance Bureau of Canada's guide, see types of home coverage.