The advice most homeowners follow on reviewing their insurance is the wrong advice for a cottage, according to Katie Young (pictured), a sales broker at Mitch Insurance – and following it can leave a cottage owner badly underinsured when they need the coverage most.
The difference comes down to how the two properties are insured. A standard home policy typically carries guaranteed replacement cost, which rebuilds the home regardless of the final bill, so the rebuild figure matters less year to year. Most cottages are written instead on a capped replacement-cost basis, where the dollar limit on the policy is the most an owner will receive, and that figure has to keep pace with what rebuilding actually costs.
When a loss exceeds the limit, the insurer works within the figure rather than the true cost of rebuilding, which can mean the property is restored with less than the owner expected.
That is harder than it sounds, Young said, because cottage rebuild costs are pushed up by exactly the locations that make cottages desirable. "Companies obviously do factor in that location, whether it's because it's an island cottage, waterfront, or just in a rural location," she said, "because that will impact the rebuild amount of the home, as delivery and exporting materials to rebuild would likely take more time and effort to get to those locations."
The figure also has to account for everything the property contains, she said, and missing details quietly erode it. The rebuild amount is shaped by all the usual variables — square footage, number of storeys, bathrooms, attached or detached structures, exterior finishes – along with features like a pool, hot tub, wood stove or a home-based business, any of which can move the number.
Capturing all of it is what produces an accurate limit. "A good broker will make sure they're determining the rebuild amount by gathering all those details and making sure they're capturing that full risk to provide that highest rebuild amount available for that home," she said.
Part of the risk, Young said, is that nothing forces the conversation. Cottage policies renew the same way most insurance does – automatically, year after year, unless the owner cancels – so a rebuild figure set once at purchase can quietly sit untouched while costs around it climb. Left to default, the policy renews; the limit does not catch up on its own.
Even an accurate figure does not hold still. Young said policies build in only small automatic increases for inflation – the rebuild amount ticks up incrementally at each renewal – but those increments can fall behind in a fast-moving market. "Through COVID, we saw the prices of lumber go way up," Young said.
That gap between automatic increases and real-world costs is why the review cycle for a cottage has to be tighter than for a house – and this is where Young draws the sharpest distinction. A capped cottage policy, she said, should be reviewed every couple of years to make sure the rebuild amount is keeping pace and the owner is not slipping into underinsurance.
A guaranteed home policy calls for the reverse. Because it rebuilds regardless of cost, the danger there is paying for too much coverage rather than too little.
"I would only check the rebuild amount, as long as you're confident with who you got your policy through, every maybe five to six years to make sure you're not actually overinsured," Young said.
Young said some cottage owners do end up short, and that preventing it is a shared responsibility. The broker has to gather the detail and offer the right coverage, but the owner has to supply accurate information about the property and choose insurers who take the time to get the rebuild figure right. Checking for that level of service when shopping, she said, is part of what protects an owner – there is little value in a policy that falls short in the one moment it is meant to respond.
"What's the point in having insurance if you're not going to be covered in a loss?" Young said.
