What are the Different Types of Insurances for Homeowners?
Here are some of the most common types of insurance you might consider as a homeowner.
Home insurance is probably the first type of insurance that comes to mind for homeowners.
Home insurance protects your home and its contents in the event of damage, loss or theft. It can also protect you from personal liability if someone gets hurt on your property.
All home insurance policies aren’t created equal. The amount of coverage you have depends on the home insurance policy.
Lenders require you to take out home insurance as a condition of mortgage approval. That’s because your home is acting as security for the mortgage. If anything were to happen to your home, your lender wants to make sure you’d be fully protected.
Mortgage Default Insurance
Mortgage default insurance is required if you’re putting down less than 20% on a property. Without mortgage default insurance, you’d be required to save up a down payment of at least 20%. This could be pretty time-consuming and take years inexpensive real estates markets like Toronto and Vancouver.
Contrary to popular belief, mortgage default insurance doesn’t protect you; it protects your lender. It protects your lender if you are unable to make your mortgage payments and default on your mortgage.
You’re required to pay mortgage default insurance premiums based on the size of your down payment and mortgage amount. The insurance premiums can then be added on top of your mortgage balance.
Lenders tend to offer their best mortgage rates on default insured mortgages, as there’s a lower level of risk on these mortgages versus uninsured mortgages.
Title insurance is something that can be purchased through your lawyer. It’s an insurance policy that protects you as the homeowner from losses related to the ownership or title of your property.
There are two types of title insurance. There’s title insurance you can buy to protect yourself. There’s also lender title insurance.
Lender title insurance is required with most lenders when taking out a mortgage in Canada. The lender will want you to cover the expense.
Although title insurance isn’t a requirement to buy to protect you, it’s highly recommended in most cases. Some homeowners choose not to purchase title insurance because an up-to-date survey exists. However, a survey doesn’t protect you in all instances. Title insurance may offer greater protection than a survey.
You’ll want to discuss title insurance with your lawyer to determine whether it’s right for you. With title insurance, it’s a one-time payment of premiums, unlike home insurance, which has to be paid on a monthly or annual basis.
Mortgage Life and Disability Insurance
Mortgage life and disability insurance is another type of insurance you’ll be offered. This is an optional insurance, although you’ll want to review it and see if it makes sense for you.
When buying a home, you’ll want to make sure you have adequate insurance in case anything were to happen to you from a disability or life standpoint.
Mortgage life and disability insurance can help you and your loved ones make the mortgage payments when you’re not able to. If you become disabled, it can help cover the mortgage payments. If you were to pass away, it could help pay off the mortgage in full.
Mortgage life and disability insurance should be considered alongside public life and disability insurance to determine which one is the right one for you. Regardless, having the right level of insurance is critical when buying a home and taking out a mortgage.
The Bottom Line
Do you have questions about the different types of insurance? Our mortgage experts can help you make sense of them and determine which ones are right for you. Contact us today.