I learned the hard way that if you don’t know what you’re covered for, your home insurance won’t do you much good. Read on, and I’ll fill you in, so you won’t flush good money down the drain like we did.

What kind should you get?

Home insurance generally comes in three different flavours: basic, broad (also called “standard”), and comprehensive. Basic is cheap, but doesn’t protect your home’s contents, so it’s not typically used by homeowners. Broad only covers you from “named perils” that are specified in the policy, and nothing else. Comprehensive, or “all perils” insurance works the opposite way: It covers you for all conceivable calamities except a list of excluded items—typically earthquakes and floods—along with natural wear and tear, mechanical breakdown, settling, and deterioration. This is the kind most homeowners get, and it’s the kind that Fred de Francesco, an insurance agent with Hugh Wood Canada, strongly recommends.

If you get comprehensive insurance, be sure to run a comb through the exclusion list before you sign: “One company may exclude water damage, while another company includes it,” says de Francesco. Similarly, “some policies may restrict coverage during home renovations, while others have no such clause,” he says. Work from your home? Make sure your policy allows for this scenario. Otherwise, your insurer could decline to cover you when you make a claim.

You can pay extra to add “riders” to your policy to cover items on the exclusion list, and if you live in an earthquake-prone region in B.C., says Lindsay Olson, a vice-president at the Insurance Bureau of Canada, there’s a case to be made for purchasing earthquake insurance separately.

Of concern to a broader range of Canadians, sewer backup “has become a big peril for today’s homes,” says Generations Insurance agent Vicki van Santen. If your base policy doesn’t include it, it’s the one extra you should probably always add.

How much coverage do you need?

Don’t confuse the value of your policy with the market value of your home, which includes the land your home is sitting on. Your policy only needs to provide you with the funds to rebuild your home or repair its structure if it gets damaged.

These days most insurance companies assess the cost of rebuilding your home for you, so you don’t have to worry about how much coverage to get. So-called “guaranteed replacement cost” policies cover the cost of rebuilding your home when it gets damaged, no matter what the amount—even if the insurance company underestimated how expensive it would be. Remember, though, that when you renovate, you have to let your insurance company know, says Olson, as that will affect the replacement cost.

A better deal

When you’re buying home insurance, you’re almost always better off using an independent broker who deals with a number of insurance companies, so he or she can get you the best price possible.

To keep your premiums as low as possible, consider bundling your home and auto insurance policies together. “Using the same insurance company for both could shave up to 15% off your total bill,” says personal finance guru and author Gail Vaz-Oxlade. Other measures that could give you a break on premiums: a monitored burglar or fire alarm, a sprinkler system, and—believe it or not—quitting smoking. “Many fires are caused by careless smokers, and insurance companies recognize that non-smokers have a lower risk of fire loss,” says Olson.

Don’t forget what’s inside

Most comprehensive home insurance policies include contents insurance, which covers the cost of replacing your belongings, up to a set amount. But Margot Bai, a former insurance agent and author of the book Spend Smarter, Save Bigger, says this is one area where you could save money by taking the “named peril” route and only insuring big ticket items.

“If you make a claim every time the dog chews on your dining room leg or you drop wine on your laptop, the company could decide not to renew you,” she says. “You get contents insurance to cover the big stuff.”

Building your policy

Think of your auto insurance policy as a mix-and-match wardrobe. Aside from a few de rigueur colours like basic black, the build is up to you. Below are the main components you have to choose from:

Third-party liability insurance. This insurance is mandatory, and is considered “your first line of defence if anyone decides to sue you,” says Fairview Insurance Brokers principal Fred de Francesco. You have some say over the amount of coverage you get, but he cautions against skimping in this area. “What happens if you run into a streetcar or bus? Bumping up your coverage from $200,000 to $1 million only hikes up your premiums by about $100, so it’s well worth the cost,” he says.

Accident benefits: Also mandatory, this component covers your medical expenses—everything from ambulance services to chiropractic treatment—if you’re involved in an accident, whether you’re at fault or not. A tip from Allstate Canada’s Saskia Matheson: “Your employee benefits may overlap with this coverage, so find out about your medical and disability coverage. If you have enough, you don’t need to buy extra coverage on your car insurance.”

Collision and Comprehensive: Collision insurance covers damage to your vehicle resulting from an impact with another vehicle or object—including the classic hit-and-run in the grocery-store parking lot. Comprehensive coverage takes care of such nasties as theft and vandalism.

While both collision and comprehensive insurance are optional, Margot Bai, a former insurance agent and author of the book Spend Smarter, Save Bigger, advises against waiving collision and comprehensive coverage, “unless your car is so old that the increase in premiums you’d face when making a claim exceeds the value of the vehicle.” Think $5,000 or less.

In combination, collision and comprehensive will set you back by a few hundred dollars. You would think that the premiums would go down as your car ages, but Toronto consumer advocate and auto insurance expert Lee Romanov says it doesn’t always work out that way. “If your insurer has had problems with your type of vehicle, the rates could go in any direction,” she says.

Waiver of depreciation: This option entitles you to receive the list-price value of your car if it gets totalled or stolen within the first 24 months. Otherwise, “you would have to pay back the difference between the list price and the depreciated cost,” says Nancy Hamilton, a manager at Hugh Wood Canada.

Rental car coverage: If you frequently rent cars, consider this extra coverage, “which only costs $25 to $50 per year and may be more affordable than paying for insurance every time you rent a car,” says Matheson.

If you want to lower your premiums, consider raising the “deductible” on your collision and comprehensive insurance. This is the amount that you have to pay if you make a claim. Personal finance guru and media personality Gail Vaz-Oxlade recommends “raising your deductible from the standard $250 to $500, which could save up to 20% on your premium. Go for a $1,000 deductible and you could save 30% or more.”

Shop ’til you drop

Every insurance company has a different way of assessing risk, says Marlene Landry, manager of consumer and industry relations for the Atlantic region of the Insurance Bureau of Canada. “Some companies will hike up your rate after one accident, others won’t change your rate until you’ve had two.”

That’s why you should consider enlisting an independent insurance broker to shop for you, rather than going directly to one provider. “A single broker may have contracts with five or six insurance companies, and you need to talk to several,” Landry notes.

A further stone to turn: the group insurance packages offered by many professional associations and university alumni societies. “If your association consists of accountants who drive Volvos to work, they might be able to offer you a lower rate than you’d get from an individual policy,” says Automobile Protection Association president George Iny.

The claim game

Say you run into the car ahead of you at an intersection, crunching its rear bumper. Should you involve your insurance company? In fact, “the law requires you to do so,” says Michael Turk, legal counsel for the APA. Otherwise, “you run the risk of voiding your policy.” Turk acknowledges that many people skirt around this bit of law and pay for minor collision damage out-of-pocket (assuming the other party agrees). After all, why make an $800 claim if your premiums will go up by $500 a year for the next six years?

Here’s one reason: “The person you rear-ended could make a personal injury claim against you down the road—perhaps because of chronic back pain they incurred after the collision,” says Turk. If you didn’t go through the insurance company at the time of the accident, “you now have a huge problem. The company could decline to cover you.” You’re on safer ground if you write your neighbour a cheque after rear-ending her parked car, “though it’s still a breach of policy,” says Turk. “Consider yourself warned.”

Suzanne Rasmussen (not her real name) actually did it. Drawing on her own childhood experience, the Calgary mother offered her two boys $5 for every A and $3 for every B on their report cards. “My father was a strong believer in making the link between hard work and earning money,” she recalls. “It worked for me as a kid.”

But the deal Rasmussen offered to her kids didn’t work nearly as well. It appealed to her six-year-old, but did nothing to motivate her eight-year-old. “Just like his dad, my older one resists doing any work that doesn’t interest him,” she says — with or without a cash incentive. “Within a couple of days I knew the deal wasn’t working. He still sat grimly at the kitchen table, staring at his blank sheet of paper.” Rasmussen says she’s come to realize that internal motivation plays more of a role than she thought.

Dr. Wendy Mogel, a parenting expert and author of The Blessing of a B Minus, isn’t surprised the experiment failed. She believes offering cash for grades is a terrible idea. “Study after study has shown that external rewards decrease intrinsic motivation,” she says. “Kids become motivated by the product and lose motivation for the process.”

Parenting guru Alfie Kohn, author of the seminal book Punished by Rewards, takes even less kindly to the practice. “Giving kids money, stickers or any other incentive for grades can produce only temporary obedience. It will never help kids become more enthusiastic learners.”

The lure of lucre doesn’t cause even surface behaviours, such as the number of hours spent studying for tests, to budge very much. In 2007, a Harvard economist launched an ambitious study involving more than 38,000 children in 261 schools, half of whom were given money for performing well on tests. The plan was to motivate low-performing students to “up their game.” What happened? The money had either a marginal impact or no impact at all on student achievement.

So if money doesn’t do the trick, what does? Dr. Ester Cole, a Toronto clinical psychologist and chair of the Parenting for Life program, suggests asking your child what she thinks might help. “Make it a partnership, rather than a regimen you’re imposing on your child.” At the same time, help her develop a schedule that builds in time for study, review and desired leisure activities.

As for rewards, Cole sees nothing wrong with a joint activity chosen by the child. “The reward need not be for results, but for effort.”