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Not all insurance products are created equal. It is important to understand all the different insurance products to ensure you have proper coverage. The following are the main insurance product options you will encounter with homeownership, and what they mean.
Hi-Ratio Mortgage Insurance (eg. CMHC): This insurance is mandatory for homes where the buyer puts less than 20% down. In fact, the availability of this insurance is the reason that lenders accept lower down payments, such as 5% minimum which actually helps these buyers access comparable interest rates typically offered with larger down payments. This insurance typically requires a premium, which is based on the amount of the mortgage being applied for. This premium can be paid in a single lump sum, or it can be added to your mortgage and included in your monthly payments.
Home (Property & Fire) Insurance: Next, we have another mandatory insurance option, property and fire coverage (or, home insurance, as most people know it by). This MUST be in place before you close on the home and get the mortgage! It is especially important to note that not all homes or properties are insurable, so you will want to review this sooner rather than later. Keep in mind, with this coverage you may not have protection in the event of a flood or earthquake. You may need to purchase additional coverage to be protected from a natural disaster, depending on your location. Simply put, always consult with a knowledgeable general insurance professional to ensure you have the necessary protection to protect the investment in your home and associated items.
Title Insurance: When it comes to lenders, this insurance is mandatory with every single lender in Canada requiring you to purchase title insurance on their behalf. In addition, you have the option of purchasing this for yourself as a homeowner. The benefit of title insurance is that it can protect you from existing liens on the property’s title, but the most common benefit is protection against title fraud. Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself - without your knowledge. Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property. Title insurance is typically arranged by your Real Estate lawyer as part of the services they provide. While this is an additional cost component of your legal cost, it is a necessary component on all property purchases.
Strata (Condominium) Insurance: When it comes to a condominium complex (Strata), their insurance covers the building itself – meaning in the event of an incident (fire, flood, etc.) the building can be re-established. This however only covers common areas; it does not cover the contents of YOUR particular unit, which requires a homeowner’s insurance policy. Personal insurance can also help with the strata deductible. For example, in the event of a flood that originates from a unit, it will require fixes to the unit itself (under your personal policy) plus the building (covered by the strata policy). Depending on the type of claim or damage, owners are often relocated to a hotel while the unit is being repaired and the personal insurance would also cover being displaced.
To ensure that you remain up-to-date with your Condo insurance policies, it is vital that homeowners living within a stratum (condominium complex) to check with management for a copy of the most recent Strata insurance policy. Always take your strata and individual policy to an insurance agent to ensure you are aware of your coverage and that your individual homeowner’s policy is working in your favor. Investment property owners especially need to check their existing deductible against the updated deductible and insurance policies to avoid any future issues.
Mortgage Insurance Plan: This coverage is optional, but any mortgage professional will tell you is extremely important. The purpose of the mortgage protection plan is to protect you, and your family, should something happen. It acts as a disability and a life insurance policy in regards to your mortgage. Typically, when you get approval for a mortgage, it is based on family income. If one of the partners in the mortgage is no longer able to contribute due to disability or death, a mortgage protection plan gives you protection for your mortgage payments.
If you have any questions about mortgage insurance or what are the best options for you, please do not hesitate to reach out to me! I would be happy to take a look at your existing plan and discuss your needs to help you find the perfect coverage to suit you and your family.
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