How is Home Insurance Calculated?

There’s no denying that home insurance can feel like a complicated topic, especially if it’s your first time shopping for coverage. You have to put a significant amount of effort into researching the various facets of home insurance if you want to learn how it works.

As a five-star insurance brokerage, we receive countless questions from curious policyholders about their coverage. One of the questions that we receive regularly is, “how is home insurance calculated in Canada?”.

Unfortunately, there’s no black-or-white answer to this question; several unique factors can potentially affect how much you pay for home insurance.

Thankfully, taking the time to learn about these factors can help you make an informed decision the next time you need to compare home insurance quotes.

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Continue reading to learn how insurance companies calculate home insurance premiums in Canada.

How is home insurance calculated in Canada?

Insurance companies have unique processes for determining insurance premiums. However, they all use a similar technique: assessing risk factors.

Analyzing risk factors helps insurance companies determine how likely a policyholder is to make a claim (based on past events and data). 

Several risk factors are related to the components of your home, whereas other risk factors are related to your actions and habits as a policyholder. After assessing your unique risk factors, home insurance companies can calculate your home insurance rates and provide you with a quote.

Now that you're familiar with how home insurance is calculated in Canada, it’s time to look at some factors that directly influence your insurance rates.

Five risk factors that can influence your home insurance premium in Canada

Insurance companies assess the following factors while calculating home insurance premiums:

Risk factor #1 — Insurance history

Your insurance history provides insurance companies with a lot of important information, including the number of claims you’ve made in the past.

As a rule of thumb, making a number of claims negatively influences your home insurance rates and capability of obtaining insurance. Typically most insurance companies will decline to offer a policy to someone who has made 2 or more claims in a 5-year span. This is because you, as a policyholder, are more likely to file insurance claims in the future, which takes valuable resources away from other policyholders.

Because of this, if you make several claims in a short period of time, you can expect to pay more for coverage than a policyholder (under the exact same circumstances) who has never made a home insurance claim before.

Risk factor #2 — Location of your home

The location of your home plays an enormous role in determining your home insurance premium. Home insurance companies keep track of the cost, number and types of claims made in neighbourhoods across the country. Insurance companies use this information to help them determine the rates of future policyholders.

If you live in an area that has a higher rate of claims or more expensive claims (than other neighbourhoods in the surrounding area), you can expect to pay more for coverage than a policyholder who lives in an area with fewer claims.

If your home is located in an area that is prone to flooding from low elevation or is in close proximity to a body of water, this will also increase the insurance premium over those who live in higher elevations or far away from water bodies.

Risk factors #3 — Replacement cost of your home

The replacement cost is the amount that your home insurance company needs to cover if your property is destroyed or severely damaged by a covered risk or peril (insurance terms for unavoidable, sudden events, like house fires).

Canadian insurance companies use the following factors to determine the replacement cost of a property:

• Composition
• Square footage of the property
• The overall construction quality of the home

Please keep in mind that no two properties (or their contents) are exactly alike, so the replacement cost of your home can be drastically different from a property across the street.

Risk factor #4 — Nearby bodies of water

If your property is located near a body of water, like a large pond, lake or active stream, then you may end up paying more than the average homeowner for insurance. This is due to the fact that being located near a body of water drastically increases the likelihood of floods, which can potentially damage your home.

The majority of home insurance policies in Canada don’t automatically cover flood damage, so if you live near an active body of water and want to financially protect your home, you should speak with your Surex insurance advisor about adding flood insurance to your policy as an add-on.

Risk factor #5 — The age of your roof

If it’s been a while since you've had your roof professionally repaired or replaced, it may be negatively affecting your home insurance premium. Generally, home insurance companies provide depreciated coverage values if your roof is approaching the end of its lifespan.

To ensure that your roof isn’t negatively affecting your insurance premium, make sure that it gets repaired every 20 years. If you’re thinking about purchasing an older home, you can ask the seller when they last repaired the roof. This will give you a general idea of when you need to replace your roof.

Some companies, like Intact Insurance, offer discounts when homeowners have their roofs replaced. Let your Surex advisor know when you've taken this step!

How to calculate insurance premium rates for a home

The easiest way to get a general idea of potential home insurance premiums in Canada is by using an insurance premium calculator. Although a premium calculator won’t give you the exact amount you’ll pay, it will help you estimate home insurance costs that you’ll need to cover.

These invaluable tools are available online and are free to use, making them a must-have tool for policyholders that are shopping for insurance. 

You can also get access to all the insurance information that you need by contacting your Surex insurance advisor.

You can save up to 25% by comparing insurance quotes with Surex

At Surex, we make shopping for home insurance as easy as can be. We do this by providing policyholders with competitive quotes from several of Canada’s top-rated home insurance companies, including Aviva. 

We’re here to answer all of your questions; whether you’re curious about something general, like “how is home insurance calculated?”, or would like to ask something a little more specific, like “how can I save money on insurance?”, we’ll do our best to find the answer for you.

The best part about teaming up with Surex is our advisors work quickly; we can provide you with competitive insurance quotes in ten minutes or less. Not to mention, when you bundle multiple policies (home and auto insurance, for instance) with one of our carriers, you can save as much as 25% on coverage. Contact us today to start comparing insurance quotes in a matter of minutes.