Whether you’re closing on a home or refinancing your mortgage, you are going to need to look into various insurance products. Some of these are going to be mandatory, others are optional, and some are just common sense to have or look into.
Here are the various types of insurance products you will encounter when closing your home or mortgage transaction:
A home insurance policy covers your home and its contents in various situations such as floods, fires, break-ins and personal liability if someone gets hurt on your property.
If your property has a mortgage, your lender will likely require that you have the appropriate coverage and that you submit proof of your coverage prior to closing your transaction.
While home insurance costs can add up, there’s really no good reason to leave your biggest asset unprotected.
When shopping for home insurance, you can use an insurance broker who would typically shop around for the best rates with the insurers they work with, or you can obtain a policy directly from an insurance company.
Be sure to read the fine print before you purchase a policy as they are not all the same and coverages of certain items and situations can vary among insurers. Your mortgage lender may also have requirements for minimum coverage levels which you’ll need to consider when shopping around for a policy.
Home insurance costs vary depending on coverage, home value and additional factors
Your condo corporation will typically carry commercial condo insurance to cover common areas and the shared exterior and interior aspects of the condo. In most cases, this policy does not cover your individual unit and your contents. You’ll need a personal condo policy to protect your unit.
For example, if a homeowner in a unit above you has a flood and the water causes damage to your unit and belongings, the home insurance policy of both parties will likely cover the claim.
Like home insurance, most mortgage lenders will consider having an insurance policy for your unit as mandatory and you will require to produce proof of coverage prior to closing (often referred to as an “insurance binder”).
The cost of condo unit insurance varies depending on coverage, condo value and additional factors
RENTER’S OR TENANT’S INSURANCE
If you plan to rent your property or rent part of it, your tenant’s contents and liabilities may not be covered, even if you have a homeowner’s policy in place on the property.
For example, if your property is tenanted and there’s a flood, your home insurance may cover the cost of repairing your property, but if your tenant’s possessions such as their TV or couch suffers damages as a result, your insurance company will likely not cover these items.
While tenant insurance is not mandatory in Ontario, as a landlord, it is a good idea to require your tenants to obtain their own insurance to cover their possessions and personal liability while living in your unit. Landlords typically incorporate such requirements as part of the lease agreement.
The cost of tenants insurance may vary with the level of coverage needed, but in most cases, it is an affordable monthly payment.
Your property’s title is legal proof that you are its owner. It describes your rights to the land and any limitations like giving your local phone and power companies legal right to construct, repair, replace and operate wires on a section of your property.
Title insurance is a policy that protects the homeowner and lender against future issues that may arise with the title of the property.
For example, you purchased a property with a shed that was built by the previous owners. It is later discovered that the shed partially sits on the neighbour’s property. In this case, a title insurance claim can be made to correct the situation.
Title insurance also protects against existing liens against the property’s title (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property), title fraud, and errors in surveys and public records.
Most lenders will require a title insurance policy be purchased as the policy also protects the lender’s interests in having a marketable property. Learn more about title insurance here.
Unlike usual insurance premiums that are paid monthly or annually, Title insurance is a one-time premium based on the value and location of the property.
MORTGAGE DEFAULT INSURANCE
Mortgage default insurance (also known as “mortgage insurance”) is mandatory on all mortgages with a down payment of less than 20 percent of a home’s purchase price.
This insurance protects lenders, but also allows qualifying buyers purchase a property with as little as 5% down payment.
Mortgage default insurance costs between 2.8% to 4% of the mortgage amount. This cost can be rolled onto the mortgage so it’s not an out-of-pocket expense.
LIFE, DISABILITY AND CRITICAL ILLNESS INSURANCE
While it is difficult to imagine, when taking on a mortgage, it is a good time to consider unfortunate scenarios whereas you may not be able to pay your lender and may put your home at the risk of foreclosure.
While life or disability insurance may not have been a topic you thought about in the past, it may be worthwhile considering a policy to protect you and your family in a worst-case scenario.
Life insurance is not mandatory, but a good idea to look into. Disability and critical illness insurance are also options that would supplement your income should you not be able to work due to a disability or a critical illness. These products are also typically offered through your employer’s benefit plans.
Costs can vary depending on life insurance type, coverage, and personal factors.
HOME SYSTEMS WARRANTY
You moved into your new home in the summer. Come fall, you turn on the furnace and discover it isn’t working. You’re devastated when find out that you need a new furnace at a cost of $4500.
In reality, the systems in your home are complex and can be expensive to repair or replace. There are several insurance options that will cover major home systems and even appliances should they break down or require repair.
While absolutely optional, if you are looking to reduce the risk of expensive repair bills during the course of your home ownership. There are various options that will have you covered and sleeping well at night.
Costs vary depending on the coverage you are looking to get and the home’s age.
Important note: This article is not Legal Advice. No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.