Mythbuster: Your home's selling price v. the value of your insurance policy

I should insure my house for less than its potential selling price because the selling price includes the land.

The selling price of your home and its insurance value aren't as closely related as you may think, although the figures could be similar. The purpose of most property insurance is to cover the cost of rebuilding your home from the ground up in the event of a major loss (e.g., a fire that destroys your entire home). While it's true that the value of your insurance policy shouldn't factor in the cost of the land your home is built on, it does need to cover the many costs associated with rebuilding a home.

In addition to the reconstruction costs, the value of your insurance policy should also be enough to cover the expense of tear down, removal and disposal of debris. You'll also need funds to cover the cost of labour for the debris removal. If your home is older, the builders may need to spend extra funds to bring the rebuilt structure up to current building codes.

Most insurance policies cover the cost of replacing the contents of your home with new fixtures of similar kind and quality. When you put your home on the market, an outdated kitchen can lower the selling price. But when you're insuring your home, the cost of replacing an outdated kitchen can make the value of the insurance policy higher than the price you would get for selling your home.

When you add all of these costs together, your policy's value could be close to the price of your home plus the land it's built on.

Is your property insured for the right value? Speak with an OTIP service representative at 1-800-267-6847. We'll give you an honest opinion that you can trust!