Insurance

The insurance requirements associated with home ownership can be complex as there is no one-stop insurance shop to fill every need. Some insurance gets placed by your lender or mortgage broker, some by an insurance broker, some by your lawyer.

This section provides a brief overview of the various types of home-related insurance. Please seek quotations from the relevant insurance experts for each type of insurance. Carefully review coverage, limits, restrictions, rates and overall policy suitability to ensure that your insurance needs are being appropriately met. You probably do not need every type of insurance; however, if something goes wrong the appropriate insurance becomes the bargain of a lifetime. We have included a checklist of documents that your insurance broker will require in order to provide coverage.

Homeowner’s Insurance

What is it?

Just as one would not drive a car without insurance, one does not own a home without this basic insurance. Homeowner’s insurance protects your home against hazards such as fire, smoke, wind, hail and acts of vandalism. It would also provide liability coverage against injury to any of your visitors. It does not insure the land, only the house and any other improvements.

Is it required?

Your lender will require Homeowner’s insurance coverage in an amount equal to your mortgage. This is required to provide the lender with security for its loan in the event of a loss. Homeowners are well advised to consider purchasing an insurance policy with “guaranteed full replacement cost”. In the event of loss, you would be covered for the full amount it would cost at the time of loss to replace the house rather than its replacement cost minus depreciation.

How much does it cost? And is it really necessary?

Premiums will vary depending on how much your home is worth. Consider increasing the deductible amount to reduce premiums. Yes, it is really necessary.

How do premiums get paid?

Homeowners make payments directly to an insurance company or broker.

Do rates change?

Rates may change upon policy renewal, usually annually.

Options

Most homeowners opt for a homeowner’s policy that also protects the contents of the home. Contents protection coverage can also be for full replacement value.

Hint => non-smokers sometimes get rate discounts.
Hint => monitored burglar alarms sometimes get rate discounts.

Where do I get it?

Contact your general insurance broker or agent for advice and coverage.

Mortgage Life Insurance

What is it?

This is a life insurance policy with the amount of insurance being equal to the principal amount of the mortgage. In the event of the mortgagor’s death the beneficiaries will get the balance of the mortgage paid off.

Is it required?

Lenders do not usually make their commitment to place a residential mortgage with a buyer contingent upon the buyer taking out mortgage life insurance. An exception to this would be mortgages for very high amounts.

How much does it cost? And should we get it?

The premiums are based on your age and the mortgage amount. Mortgage life insurance premiums are not high. The peace of mind provided to the major breadwinner(s) of young families is that their beneficiaries would be able to live mortgage free in the house in the event of their death would probably make this insurance worth considering. In the event of an unexpected death the last thing that survivors should be faced with is the prospect of moving because they can’t afford the mortgage payments.

How do premiums get paid?

Cost of insurance is calculated before mortgage is initially arranged. Premiums are included in the monthly mortgage payment.

Do rates change?

No. Rates and payment remain constant throughout the term of mortgage.

Where do I get it?

Through the lender or mortgage broker at the time you take out your mortgage.

Mortgage Insurance, or Mortgage Loan Insurance, or Mortgage Default Insurance

(Not to be confused with mortgage life insurance)

What is it?

Mortgage insurance, mortgage loan insurance and mortgage default insurance are all the same.

They describe the mortgage insurance through CMHC, which protects lenders of high ratio mortgages against mortgagor default. They are not one of the insurance policies that purchasers consider buying for their own benefits.

Please refer to the section “financing – type of mortgages/high ratio mortgage” for more information.

Insurance: Home Warranties

What is it?

Either the buyer or the vendor of a property can purchase a home warranty that will protect against the breakdown of certain major and minor components within the house. Items often covered in house warranties are: heating system; central air conditioning; electrical system; plumbing; large appliances (fridge, stove, washer, dryer, dishwasher, etc.). Carefully review the policy for coverage.

Is it required?

No

How much does it cost? And is it really necessary?

House warranties usually cost a few hundred dollars. On newer houses it’s probably a waste of money. On older houses, it is anyone’s guess. A few hundred dollars spent in warranty premium and deductible (say $500 total) would be far preferable to paying the $3500 cost to replace an old furnace which unexpectedly expires.

How do premiums get paid?

Premiums get paid directly to the insurance company.

Title Insurance

What is it?

“Title” legally describes the ownership of land. Purchasers want assurance that the property they are buying will legally be theirs and they will receive “good and marketable” title to it.

Those with any claim to your property should be restricted only to any mortgagee(s), and the government, if taxes are not paid. Title insurance eliminates the risks of a defective property title by providing the compensation necessary to rectify covered title defects. Most policies also pay the cost of defending against any covered claim. Unlike homeowner’s insurance which protects you from an unforeseen event in the future, title insurance protects you from an undetected defect or fault in the past.

What is a title defect?

The following are some examples of hidden title defects that a title insurance policy could typically cover: unsatisfied mortgage, lien, or judgment; fraudulently discharged mortgage(s); missing heirs, etc.; Improperly executed deeds; irregularities or errors in existing surveys; required removal of existing improvements; unregistered easements or rights-of-way;…the list could go on and on.

If I don’t have Title Insurance, how serious could a claim be?

It could be very serious. You would have to pay all defense costs and a claim could result in complete loss of equity if defense were unsuccessful. Title insurance means that you do not have to worry about any mistakes in titles.

But I thought it was my lawyer’s responsibility

It is. Typically, after closing you receive a “letter of opinion” from your lawyer commenting that in their opinion your title is “good and marketable”. Before title insurance became popular in Ontario (mid to late 90’s) the only recourse a purchaser could have pertaining to title defects discovered after closing would be to sue the lawyer. Frankly, that does not happen too often because most title defects in Ontario are fairly easy for lawyers to rectify. Covered title defects on title insured properties are even easier to resolve by processing a claim through the insurer.

Is it required?

No, title insurance is not required.

How much does it cost? And should we get it?

The cost of title insurance is a few hundred dollars. We encourage purchasers to consider buying title insurance not because of the fairly small likelihood of an undiscovered title defect but because of the cost savings provided. Some savings are even significant enough to almost completely pay the cost of some title insurance policies.

What cost savings are there if I get Title Insurance?

In usual transactions lawyers not only search title but also obtain certificates of clearance from the zoning department, work orders, liens, hydro, etc. If the property is title insured then the lawyer can skip some of the searches as the need for them is redundant. If there were to be a problem discovered on any search then the insurance would pay to resolve it. As municipalities increase their search fees title insurance becomes more cost effective. On some properties the savings amount to more than $200.00.

When is it a really good idea?

When the closing is quicker (sooner than 30 days) as some searches take weeks to complete.

How long does coverage last?

As long as you own the property.

I heard that if you have Title Insurance you don’t need a survey. Is that true?

Yes, and no. The correct answer is revealed in your interpretation of why you might need a survey. A current survey alerts purchasers to recently built additions, garages, decks, etc. which may contravene by laws. It also details lot size, encroachments, easements, rights-of-way etc. Title insurance may address any covered problem but it will not make you aware that the problem exists and therefore might have to be resolved in the future. Although lenders may not require you to pay for a new survey because their risk is protected, an up-to-date survey is a definite asset. You can see a sketch of the land you are buying and discover encroachments. If you are planning to do any additions yourself the city requires a survey detailing proposed renovations before they will grant a building permit. You may not need a survey to close a title insured property but you do need it for complete information disclosure.

How does a premium get paid?

A premium is a one time fee and gets paid to the title insurance.

Do rates change?

No, it is a policy paid once at the outset.

Where do I get it?

You can either pay title insurance premium directly to insurer, or go through your lawyer.