Not all insurance products are created equal. It is essential to understand all the different insurance products to ensure you have proper coverage. Below are the leading insurance product options you will encounter with homeownership and what they mean:
Default Insurance: This insurance is mandatory for homes where the buyer puts less than 20% down. In fact, default insurance is why lenders accept lower down payments, such as 5% minimum, and helps these buyers access comparable interest rates typically offered with larger down payments. This insurance typically requires a premium based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). This premium can be paid in a single lump sum or 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 the mortgage! It is essential to note that not all homes or properties are insurable, so you will want to review this sooner rather than later. Remember, with this coverage, you may not have protection in a flood or earthquake. Depending on your location, you may need to purchase additional coverage to be protected from a natural disaster.
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 can buy 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.
Strata Insurance: When it comes to a stratum, 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 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 personal insurance would also cover being displaced.
To ensure that you remain up-to-date with your strata insurance policies, it is vital that homeowners living within a stratum check with management for a copy of the most recent insurance policy. Always take your strata and individual approach to an insurance agent to ensure you know your coverage and that your individual homeowner’s policy is working in your favor. Investment property owners need to check their existing deductible against the updated deductible and insurance policies to avoid future issues.
Mortgage Protection Plan: This coverage is optional, but any mortgage professional will tell you it is essential. 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 regarding your mortgage. Typically, when you get approval for a mortgage, it is based on family income. If one of the mortgage partners can no longer 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 review your existing plan and discuss your needs to help you find the perfect coverage to suit you and your family.