What home insurance actually covers (and usually doesn't)

The basics · 6 min read

Most people buy home insurance once — when they get their mortgage — and never read the policy again. That's a shame, because a standard Canadian home insurance policy is really four mini-policies bundled into one. Knowing what's inside each part is what separates "I hope I'm covered" from "I know I'm covered."

Part 1: Your dwelling (the building itself)

This is the part people think of first. It covers the physical structure — walls, roof, floors, built-in fixtures, and often things like a deck, fence, or detached garage — against the perils listed in your policy. Typical covered perils include fire, lightning, windstorm, hail, and certain kinds of sudden water damage, like a burst pipe.

The coverage is based on replacement cost: what it would cost to rebuild your home as it stands today, not what you paid for it or what it would sell for. In a rising construction market those three numbers can be very different, which is why insurers care about your rebuild value and you should too.

Part 2: Your personal property (your stuff)

Furniture, clothes, electronics, kitchen gear — your belongings are usually covered against the same perils as the building, whether the item is at home or temporarily elsewhere (a laptop stolen from your car, for example). Most policies set this limit as a share of your dwelling coverage, and your belongings are often settled at replacement cost.

The fine print matters here: many categories of high-value items have sublimits — caps far below what the item is actually worth. Jewellery, watches, art, coin or stamp collections, and bicycles are common examples. If you own anything in this category, ask specifically whether the sublimit is enough, and whether scheduling the item (listing it individually on the policy) is an option.

Part 3: Additional living expenses (ALE)

If a covered loss makes your home unlivable — a fire guts the kitchen, say — this part pays the reasonable extra costs of living elsewhere while it's repaired: a rental, hotel meals beyond your normal grocery bill, that sort of thing. It's one of the most underappreciated parts of the policy, and it's the reason you should ask what the limit is before you need it.

Part 4: Personal liability

This is the quiet powerhouse of the policy. If someone is injured on your property, or you (or a family member) accidentally damage someone else's property, liability coverage handles the legal costs and damages up to your limit. People shopping mainly on price sometimes ignore this number — it's worth understanding what it covers and whether it suits you.

What it usually does NOT cover

This is where surprises live. Exclusions vary by insurer and province, but these are the ones that catch people out most often:

• Overland flooding. Water that comes in from outside — rivers rising, heavy rain pooling against the foundation — is typically excluded from the base policy. Many insurers now offer it as an optional add-on; whether it's worth it depends on where you live.
• Earthquake. Usually excluded entirely unless you buy an earthquake endorsement, in the regions where it's offered.
• Sewer backup. Often excluded or capped at a low default limit, with higher limits available as an add-on — worth knowing if your basement is finished.
• Wear and tear, neglect, and gradual damage. Insurance covers sudden and accidental events, not maintenance. A roof that leaks because it's forty years old is a homeowner problem, not an insurer problem.
• Home-based business activity. A home office is usually fine, but inventory, business equipment, and liability from customers visiting your home often need separate handling.
• Vacancy. If your home sits empty for an extended period (a long trip, a property between tenants), coverage can shrink or lapse unless the insurer knows and agrees. Tell them before you leave for weeks, not after.

The deductible: your share of every claim

Every claim comes with a deductible — the amount you pay out of pocket before insurance kicks in. It applies per claim, not per year. A higher deductible usually means a lower premium, and the right number for you depends on what you could comfortably pay tomorrow without stress. (There's a whole guide on this trade-off next in the series.)

General information only — not financial advice. Policy wording varies by insurer and province, so treat your own policy document as the final word.