Understanding Your Home Insurance
Understanding insurance is key to navigate home buying better. Learn how proper coverage protects your investment and impacts mortgage options. It’s essential to understand the various types of insurance associated with homeownership to ensure you’re fully protected throughout your real estate journey.
Whether you’re purchasing your first home or adding to your investment portfolio, having the right coverage can make a significant difference in managing risk and providing peace of mind.
To help you navigate this important part of the process, here are the four main types of insurance products you’ll likely encounter—along with what they mean for you as a homeowner or buyer:
Default Insurance: Making Homeownership More Accessible
If you’re buying a home with less than 20% down, default insurance is mandatory—but it works in your favour. This insurance enables lenders to offer low down payment options (as little as 5%) while still providing access to competitive interest rates typically reserved for larger down payments.
The cost of default insurance is based on your loan-to-value ratio (the mortgage amount divided by the purchase price). This premium can either be paid upfront or conveniently added to your mortgage and spread out over monthly payments.
In Canada, the most recognized provider is the Canada Mortgage and Housing Corporation (CMHC), a federal government agency. However, two private companies—Sagen and Canada Guaranty—also offer default insurance, giving buyers more choice and flexibility.
Home (Property & Fire) Insurance: mandatory insurance
Property and fire coverage (or, home insurance, as most people know it by). This is number two on our list as it MUST be in place before you close 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.
In addition to protecting against fire damage, home insurance can also cover the contents of your home (depending on your policy). This is important for anyone looking at purchasing condos or townhouses as the strata insurance typically protects the building itself and common areas, as well as your suit “as is”, but it will not account for your personal belongings or any upgrades you made. Be sure to cross-check your strata insurance policy and take out an individual one on your unit to cover the difference.
One final thing to consider is that you may not be covered 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.
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.