The Burn Your Mortgage Podcast: Everything You Wanted to Know About Home Insurance with Stefan Tirschler

Full  Transcript

Sean Cooper  

Hi, Stephen, how are you doing today?

Stefan Tirschler  

Very well, thank you. How are you?

Sean Cooper  

Good. Thank you. It's great to have you on the podcast. I haven't yet had a home insurance expert on the podcast. And it's such an important topic to discuss, especially if you're buying your first home. So excited to discuss that important topic with you today and get into some of the basics as well as sharing some of the lesser known things, because I find there's a lot of misconceptions out there about home insurance. So yes, I'm really looking forward to our conversation today.

Stefan Tirschler  

Thank you. I'm very happy to be here and hopefully help with some of those points.

Sean Cooper  

Great. Well, we're just talking offline before the podcast here and you corrected me. It's not Steven, it's Stephan. Like, the cool character on the show family matters if anybody ever watched that show back in the 90s here, so I'll make sure that I say her name correctly here. But anyways, yeah, let's just try and start this on a fun note here. But definitely home insurance is a very important thing. You need to make sure that you have it when you're buying a property there, because it's required by the mortgage lender. So the first question that I wanted to ask you was that a lot of people when they're buying their first property here, the some people may be living with their parents, so they might not have had to buy renter's insurance, or tenants insurance before but many people don't have that luxury there and they're living on their own and paying rent and they have tenant or renters insurance. So first off, maybe you can go over some of the differences for people who are familiar with tenant and renter's insurance. How is home or property insurance different from that when you're buying your first property? Yeah,

Stefan Tirschler  

great question. And you're right that not everyone does have experience with even renter's insurance necessarily depending upon their living situations before they buy a home. But for those who are familiar with tenants insurance, or renters insurance, I might use those terms interchangeably, because they can come up both ways. Depending on where someone is looking at the tenant, your primary concern is to ensure your personal property. 

So that would be basically anything that would fall out of that house, if you tipped it sideways and just let the loose bits roll out into the yard. As a tenant, you own the things in the home, but you do not own the home itself. So your insurance requirements are significantly limited in that respect, in that you need to take care of your personal property. It's your furniture, your clothing, your kitchen equipment, your watch collection, maybe you have a wall of DVDs that you've accumulated through your formative millennial years, all of these things that are precious to you, and that could be damaged while occupying a home that you don't own. And for that reason, tenants or renters insurance is typically on the very affordable side of the insurance spectrum, because that much larger risk, which is the building itself, isn't your responsibility to insure. So your cost is very much tied to the value of the items that you own and that you choose to protect for that policy. 

That being said, tenants insurance then also includes coverage for your legal liability to others, which is the simple case of you, you've accidentally leave an extension cord out across your living room and a guest over for a dinner party trips over that and suffers an injury as an example, that might be more relatable to a tenant or a renter, because they don't necessarily have the same classic IP driveway where the mail delivery person slips and falls to worry about as a homeowner might. 

And then most crucially, in some cases is the coverage for additional living expenses. But its insurance policy provides. Because I think over the past few weeks when we've had this polar vortex and a lot of freezing and burst pipes in multi unit buildings across the country, a tenant may not realize that if that home becomes uninhabitable due to an event like that, depending upon the jurisdiction, they're in and out of the residential tenancy branch works, they may not be required to pay rent for a period of time if the home is inhabitable. 

But that doesn't mean that someone else is responsible to provide them with a new place to live while they wait for that home to become habitable. Yeah, and that's where additional living expense coverage comes in to pick up the cost of whether it's a hotel, a short term rental, the additional cost of eating in restaurants three meals a day instead of preparing more ruble meals of your own, which you used to be able to do at home. 

For many people that is the most significant benefit in the event of a serious event, like a cold snap or a wildfire approaching a city and forcing people to evacuate for a period of time. That can be incredibly important for someone in the tenant space. Now, as a homeowner, you face all of those same risks: you risk that your personal property could be damaged in a claim, you risk that your home may become uninhabitable because of something like a burst pipe or a fire that approaches your city or a dishwasher. 

Your malfunction that led the three levels of your house, any number of things could accidentally render that home uninhabitable. And again, you need that additional living expense coverage to provide somewhere else for you to live. Because as a homeowner, you exclusively are providing yourself with shelter. And you need to forecast and prepare for the chance that you may not be able to do that for a period of time and rely on your home insurance policy to help you fund those additional costs. 

You have that same liability exposure to the trip involving a slip involved only if you own a home, especially a detached home, the entire premises is now yours and you're responsible for those potential incidents. So you want to ensure that protection is there. Beyond that, as a homeowner, you now own real property, real physical, permanent property that is, I lost my train of thought,

Sean Cooper  

No problem, just start over again. And we'll edit this part.

Stefan Tirschler  

Yeah. Now, perhaps more significantly, for a homeowner, you now own real physical property that house that is sitting on the lot, you own the cube of space within the four walls of your condo, and that real permanent property becomes your responsibility to insure against physical loss or damage. It's no longer someone else's problem. Because you now own that physical house, it is yours. If you choose not to insure it, that means you are choosing to go out of pocket if anything accidental happens to it.

 Now, if you're buying a detached home homebuyer, they're probably familiar with their mortgage providers requiring a home insurance policy to be in place, and that they're to ensure that if that home is damaged, it can be restored to a saleable and inhabitable condition, because to the lender that home is a significant piece of collateral in which they're willing to extend a significant loan to the person who's buying that home. So it's been both parties interested in that case to make sure that home can be rebuilt if the unexpected happens. Otherwise, the homeowner no longer has a home and the lender no longer has any collateral potential way to recover the funds that they've loaned out to purchase it. 

In the condo context, it becomes a little less clear because not all mortgage providers will require themselves to be listed on our home insurance policy if they're providing a mortgage for a condo. So in that case, there may be a perception that condo insurance is optional. And if your budget is tight, you can maybe avoid it for a year or two until you can get in later on. And that assumption or perhaps perception could be a very risky one, especially for a first time homebuyer who's putting a lot of their existing resources in to qualify for that mortgage and funding the downpayment and closing costs. In a condo even though the condo corporation or the strata Corporation if you're in British Columbia, he is responsible for ensuring the physical structure itself. That refers only to that physical structure. 

And typically it only refers to original construction as well. So that the common areas, the elevators, the pool, the garbage room, the parking levels, sometimes even the individual doors and windows on a unit. But increasingly we're seeing bylaws across the country that place the responsibility to ensure the interior finishes of the unit on the unit owner themselves. As simple as from the paint in or in some cases, it could be more onerous like from the concrete in which the owner can become responsible for repairs to damage within their unit. 

So not only could you say the classic example of someone in a unit above you puts a coat hanger on that fire sprinkler and causes a massive flood that takes out three floors of your condo tower. Not only is your personal property damaged, not only do you need a place to stay while your condo is being decontaminated. If you have improved any aspect of your condo, maybe replaced the vinyl flooring with hardwood, perhaps you replaced your carpet with a luxury vinyl plank row, maybe you upgraded the built-in appliances or renovated the kitchen or the bathroom. 

All of those additional items that were not present in the original construction are no one's responsibility, but your own. And sometimes that takes newer condo owners by surprise, especially if people before them had made those improvements, which would have made the unit more attractive to buy, but also become part of their own personal responsibility to ensure thanks

Sean Cooper  

for laying that out. So clearly and yet definitely speaking from personal experience, a couple of things came to mind. Like I remember recently seeing news on the story where there was a lady where she was living beside a new construction property and there were some issues with it and the cities that it was in danger of the property falling over so she actually couldn't live in her house anymore. So I certainly think that having a good home insurance policy that helps pay for living accommodations when he can't live in your house in a situation like that. 

Definitely could come in handy because it can be expensive to live elsewhere. And yeah, definitely. I have heard stories even like my mother as an example, she lives in a condo. And this didn't happen to her. But yeah, somebody has a prank or a joke, or I don't really find this very funny joke, but they decided to turn on the fire hose that was at full blast on the top floor of the condo, and it did a lot of water damage to the other units there. 

So yeah, there is that misconception that I live in a condo, I'm protected already with the condo buildings insurance. But as you've clearly laid out, it protects the common areas. But inside your unit, it doesn't protect the inside things in your unit like hardwood floors or anything else and doesn't protect your personal property as well. So it is very important to make sure that you get condo insurance as well. 

So yeah, thanks for addressing that there. So when it comes to actually financially planning to buy a home, people budget for all sorts of things like utility, hookup, land transfer tax, real estate, lawyers fees, but something that many people don't really plan for in advance is budgeting for home insurance. They are kind of as we were discussing this offline, they make an offer on a home, and then they get the mortgage approval and all that. 

But it's only after that when they actually start looking into home insurance and receiving quotes. So yeah, maybe you could talk about the importance of budgeting for home insurance, and how that's something that you can actually check out in advance, like when you see a property that you liked, it's not that hard to find out what kind of home insurance you might be looking at, so that you're not caught off guard.

Stefan Tirschler  

Absolutely. And that's a really important point to consider. In the past, you know, 17 years of working in this field, and the first 10 of those was working directly as an agent and advisor with customers, so many of whom were first time homebuyers, there isn't necessarily the same level of awareness of home insurance as a budget and our cold cocked item there is for car insurance. And, you know, I can relate to this because I can't recall any point in my education from grade one to grade 12, where the household build or career in life management courses actually referred to insurance outside of the car insurance context. And that might be because the car is the first big thing that most of us buy. 

So it's the first thing on the list, and the one that everyone is the most interested in. And I think it's fairly common practice for someone who's car shopping, to go online or call their broker and get a quote for every single car that they're thinking about purchasing, because they appreciate that the price of insurance will vary from one car to the next, and also from one insurance provider to the next. And that helps them determine whether they'll be able to afford not just the car and the monthly payments to finance the vehicle. But the insurance that they will have to pay on a monthly basis for as long as they want to drive that car. But it's required by law to have that kind of coverage on the property and homeowners insurance side that seems to come as an afterthought in a great many cases. 

And it's probably because of that lack of visibility, or that lack of you know, momentum as a culture and thinking about that as we're growing up and heading out into the world. It sort of happens more by accident. First, your landlord requires you to have an IP policy because they're concerned about liability that could attach to what you do in the home. And then the next time you hear about it is when you're buying a house and you realize close to completion that you need to provide proof of home insurance to your lender if you expect them to fund the mortgage.

And that can put people in a very tight position if they hadn't anticipated that in advance. Not only can the timing be difficult, because if you're closing on a Friday, and you haven't obtained any quotes for home insurance yet, you're now racing against time to get those quotes completed. If you're unable to qualify and buy a policy directly online, you might need to wait for someone to review your file and get back to you the next business day. 

And that could delay this incredible life changing event that you just couldn't wait to have that Friday afternoon and head into your new house with that bottle of Prosecco and really celebrate your accomplishment. So from that angle alone, it can be a little difficult to see people in that situation. And perhaps a way to correct and prevent that for a lot of first time homebuyers is to point out that home insurance is just as easy to quote as car insurance. You can quote with a number of different providers in advance, or as many different homes as you are considering buying even when you're thinking of putting through an offer. 

Get in touch with your agent and say Here's the address I'm looking at now here are the details for this house. How much do you think this one will cost to insure? And even if you're planning three or four months out, maybe the quote can't be guaranteed any longer than 30 days. But that ballpark is still going to be a very valuable tool in your toolbox when you budget because even if that quote changes, it is not likely to change as much as the quote that you didn't get and You just get a sudden surprise all at once, when you get it for the first time after removing condition. So I think that is a very important point to consider. You can get a mortgage for home insurance just like car insurance. 

And as part of the budgeting process, you probably should, because it might inform your selection of home, depending upon whether certain things that make the home itself more affordable, might make the insurance less affordable. And that balance over the long run might influence you to choose a house with maybe a different square footage, slightly different neighborhood, maybe even choosing between a home with a new roof versus a 30 year old roof. 

But make the difference in that monthly insurance column view that you realize, you know what this slightly higher upfront cost rolled into my mortgage is way easier to budget for and far less expensive over the long run, than if I were to buy a fixer upper roof that will cost me maybe 10 to 20% more to insure every month. So it can be a very important budget consideration for anyone looking for a home, whether it's a condo or a detached house.

Sean Cooper  

Those are some really great points and thanks for raising them because yeah, like the people are in the habit of kind of leaving home insurance to the end. But as you said, there are definitely huge benefits to looking into home insurance at the beginning there because as a first time homebuyer with the how expensive properties are these days in big cities like Toronto and Vancouver and Calgary and elsewhere. 

I mean, first time homebuyers are typically pretty cash strapped. So if your home insurance ends up being more expensive than you thought it can really hamper you for the coming months and years. And, yeah, you don't want to find yourself in a situation where your house is rich and cash poor and so much money's going towards your house. So you can't afford to do anything fun. So yeah, it doesn't hurt to find out about that information in advance so that you're not caught off guard later on. 

So yes, great points that you've raised there. So the last thing I wanted to talk about was considerations when looking for home insurance and looking at home insurance policies. Now, being an independent mortgage broker, like myself, there's the bad habit with a lot of people is that when looking for mortgages, or they considers the mortgage rate, they don't look at the terms and conditions of the mortgage, which can be very important, like stuff like the penalty, the prepayment privileges, being able to port their mortgage. 

I mean, this can literally mean the difference in 1000s of dollars in penalties and fees, but people just for whatever reason, they kind of have the bad habit of just focusing on the mortgage rate. So it seems to me like when it comes to home insurance, a lot of people have that bad habit as well. They just look for the home insurance with the lowest quote, and that's the one that they end up going without considering other things. So yeah, I mean, when it comes to home insurance policies, I mean, I'll be honest myself, it can seem like it's almost rocket science. To me, it's not the easiest thing to read these Holman insurance policies and understand them. 

So maybe you could break it down for the listeners and just let her know a few things to focus on and ask about when looking for a home insurance policy just to be able to compare one to the other, and not just simply go with the one with the lowest quote, because you often get what you pay for. The lowest quote may have less coverage there. So yeah, maybe just quickly, let us know if you have any points that people should inquire about so that they can barely compare one home insurance policy to the other.

Stefan Tirschler  

Absolutely. And I think you've done a great way of introducing that. Just like mortgages, there's a great deal of commoditization, in my view, in the customer mindset when it comes to insurance, perhaps the perception that insurance insurance is all the same, and you should pay as little as possible for it because just there are absolute outside emergencies. In the same way that maybe someone's applying similar capitalism to a mortgage, if the mortgage is the loan, you get the one that costs you the least so you can get into as much house as you possibly can.

 By comparison, we need to think about these as what they are, which are contracts that have very clear and specific promises in whether it's a mortgage or a home insurance policy. And understanding the impact of those promises is more important than just the bottom line. Because if you don't understand the fine point, as you say, prepayment terms can be different and surprise you with an additional maybe $5,000 off but I might be low balling that without understanding the mortgage side very well. 

But the same kind of pitfalls could face someone who purchases a home insurance policy without considering the finer details of that all of the and if they don't understand them, taking the time to speak to a professional like an agent or a broker to help understand and explain the points that are going to be most impactful to their bottom line. If something happens, you know, just like you might think I could possibly prepay one day. Let's just go through with the conditions which will be under this loan versus the next and choose the one that will better provide that opportunity. 

For me, I like to give the example on the home insurance side, especially for condo buyers. Because in a condo, you have to insure more than just your staff and the benefits within the unit. Because you don't just own your cube of space in the building, you also own a share in the building of the hole. You, along with everyone else, have every chunk of concrete and rebar of that elevator in the pool of the root of everything. And if sudden and accidental damage happens to the common property. At the end of the day, the condo Corporation is just a group of owners that have been elected to take care of that on behalf of the owners. 

But all of the owners collectively are ultimately responsible for making the building whole again if something damages it. And that's where the sometimes frightening concept of attachments comes in. Now, special assessments are things like optional upgrades or maintenance that are not covered by home insurance or condo insurance. 

But assessments that arise out of accidental damage like that sprinkler burst could happen at the top of a brand new tower and damage down, you know 10 or 20 floors, that will typically be covered by the policy that the condo Corporation maintains before the building. But those policies have deductibles just like homeowners policies do. And those deductibles can be significant, especially in the case of water damage. 

It's not uncommon these days, the water damage deductible of $200,000 or higher, or a condo building. And if something happens to that building, whether it starts in your unit or elsewhere, there's a very good chance that deductible could be partially or entirely payable by one or all condo unit owners in the building. And I

Sean Cooper  

I don't know about you, but I don't have an extra 200,000 sitting in the bank to cover something like that. Exactly.

Stefan Tirschler  

And depending upon the bylaws in a condo building, you may actually be considered responsible for the entire deductible if something like water damage happens in your unit and causes damage throughout the building as a whole. So that's something that condo insurance can absolutely respond to. But not all policies are created equal in that respect, because not all providers have designed for that scenario. 

It depends upon the needs of the customers with whom they can focus groups and plan their product development around. But if you're in a position like that, one policy, let's call it policy A, might be significantly cheaper than policy B. But policy might contain a clause that says the most we will pay in the event of a loss assessment is $25,000, or $50,000. And those are the finer points, just like the prepayment penalties under a mortgage that you need to think about, if this happened, not just because of me and my unit, but because there are 200 other units in here with people living their lives. And when people live their lives accidents happen, I might need to pay an assessment like this. 

And if I do, will this policy cover the entirety of that assessment? Or will it only cover part of it? And then leave me out of pocket five and $20,000. What I think is a super salient example right now, because of the recent increases in deductibles on the condo master policy side over the past three or four years? I think that's maybe one of the best examples I could provide right here.

Sean Cooper  

Thank you so much. So yeah, definitely be sure to ask questions. When looking into home insurance policies. If one quote comes in a lot lower than the others, be sure to ask about the amounts of the deductible and what is covered as well, because like I said, if one vote is coming in a lot lower than the other, more than likely you're getting a lot less coverage there. So a question I like to ask myself is, in a worst case scenario, if something were to happen can I actually afford to pay this deductible out of pocket? 

If I can't, then that's when I would ask for the deductible to be reduced. So that is actually at an affordable level there because maybe I can afford to pay $2,500 out of pocket or $5,000 out of pocket but if you're a first time homebuyer and you're putting a lot of your money towards the house, maybe that's not affordable for you there so yeah, definitely be sure to ask about the deductible because you don't want to be caught off guard and end up being cash strapped and ended up having to pay a huge deductible out of pocket that you didn't think that you were going to have to So yes, thanks for those great examples there and we just want to make sure I'm getting it right it's Stefan like Steve Rickles cool Alter Ego from family matters. Am I getting it right this time? 

Absolutely. Great. Well, that's everything we want to discuss today. So thanks so much for being on the podcast today. Step in and discuss home insurance, such an important topic that many people often overlook here and yes, it was great to get your insight and expertise today on the topic. All

Stefan Tirschler  

Right, I'm very happy to be here and thank you for the invitation. I hope this is helpful to your listeners.

Sean Cooper  

Thanks for listening to another episode of the Burn Your Mortgage podcast. Besides being a podcast host, I’m also an independent mortgage broker. If you or anyone you know, family, friends, co workers or neighbors could ever use any unbiased mortgage advice or a second opinion, feel free to reach out. Email me at sean@burnyourmortgage.ca or call or text me at 647-867-3711 for a free mortgage consultation.

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