Not all insurance products are created equal. One of the most common mistakes people make is assuming they have coverage when they don’t. While you may have one kind of insurance, it won’t cover everything. It is important to understand all of the different products to ensure you are properly covered. To help you have a better understanding, there are four main options below.
This is mandatory for home purchases when the buyer puts less than 20% down. In fact, this is how lenders accept lower down payments, such as 5%. It actually helps buyers access comparable interest rates offered with larger down payments.
Default insurance typically requires a premium, which is 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 it can be added to your monthly mortgage payments. In Canada, most homeowners know of the Canada Mortgage and Housing Corporation (CMHC), which is run by the federal government. We also have two private companies, Sagen Financial and Canada Guaranty, who provide this insurance.
Next, is another mandatory insurance option that MUST be in place before you close the mortgage. This type of insurance protects your home against things like fire damage, as well as the contents in your home. Flood and earthquake coverage can also be an option, but it is not always included. Depending on your location, protection from a natural disaster can be added as well. Please note that not all homes or properties are insurable, so you will want to review this sooner rather than later.
If you are insuring a condo or townhouse, the strata’s insurance will typically protect the building and common areas, but you are responsible for the inside of your unit, including your contents. You should also ensure your policy covers the difference in the strata’s deductible, should a claim arise.
Another policy that potential homeowners may encounter is title insurance. Every single lender in Canada requires you to purchase title insurance on their behalf. You also have the option of purchasing this for yourself as a homeowner, to protect you from existing liens and 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.
Mortgage Protection Plan
Lastly, we have our mortgage protection plan coverage. This is an optional coverage, but one that is extremely important as it protects you and your family, should something happen. Think of it as a life and disability policy for your mortgage. For instance, if someone on the mortgage is no longer able to contribute due to disability or death, your mortgage payments will be covered.