Protecting Your Investment from Natural Disasters and the Financial Impact of Extreme Weather Events

Climate Change and the Rising Costs of Homeownership

As climate change intensifies, natural disasters like severe storms, wildfires, and flooding are becoming more frequent and severe. This poses a significant threat to real estate, which is often the largest asset in a Canadian's portfolio. Homes and cottages are particularly vulnerable to these events, and property insurance may not cover the full extent of the damage.

A recent analysis by My Choice Financial Inc. found that the average annual insurable damage caused by natural disasters in Canada has increased by 379% in the past 10 years compared to the previous 30 years. This has led to an average increase in annual home insurance premiums of 76%, or $409, over the past decade (adjusted for inflation).

Even provinces that have seen a decline in insurable damage are experiencing rising premiums. Some insurers are even opting not to cover certain property damage risks in high-risk areas. This is particularly evident in Florida, where hurricanes are becoming increasingly common, and in Alberta, where wildfires are a growing concern.

Financial advisors are urging Canadians to consider the potential costs associated with climate change when planning their finances. This includes setting aside money for repairs or rebuilding after a disaster, as well as covering rising insurance premiums. They also recommend having an emergency fund or line of credit to cover unexpected expenses, such as basement flooding or the need to replace a damaged roof.

Furthermore, advisors suggest revisiting assumptions about real estate growth rates, particularly in areas vulnerable to climate change. They also recommend factoring in the increased capital gains inclusion rate when considering the investment potential of a cottage.

Ultimately, climate change is adding a new layer of risk to homeownership. By being proactive and planning for potential costs, Canadians can mitigate the financial impact of these events and protect their valuable assets.