Types Of Insurance Homeowners Need To Be Aware Of
Homeownership can be quite overwhelming and knowing all of the components that go along with it can be confusing, especially when it comes to the different types of insurance. Allow me to break it down for you.
The 5 types of insurance are:
Mortgage Default Insurance – protects the lender
Homeowner’s Insurance – protects your home and its content
Life, Critical Illness and Disability Insurance – protects against future missed payments
Mortgage Life Insurance – protects the borrower and their family
Title Insurance - protects lenders and borrowers
Mortgage Default Insurance
If your down payment is less than 20%, your mortgage is required to have mortgage default insurance. Since any home over $1 million must put 20% down payment, this insurance is only relevant to those homes with a purchase price less than $1 million. The lender is the one who will benefit from this type of insurance, as it protects them if you (the borrower) defaults on mortgage payments. The insurance coverage is provided by Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, or Canada Guaranty. The cost of this insurance is typically added to the mortgage and paid by the borrower over the life of the loan.
Homeowners Insurance
This type of insurance is what most of us think about when we think about insurance associated with our homes, because it’s the most personal. Homeowners insurance protects your home and the contents within it from unforeseen circumstances – e.g., theft, fire, water damage, or natural disasters. Just like mortgages, homeowners insurance has many different types of coverage, and it is important to speak with a professional about what coverage is right for you.
Life, Critical Illness and Disability Insurance
Life can be unpredictable, and that is exactly what this type of insurance protects against. If you pass away while you are covered with these types of insurance, your beneficiaries will receive your proceeds, which can in turn be used to pay off your mortgage.
Mortgage Life Insurance
This insurance is optional and protects the borrower and their family. In the event of the borrower's death, this insurance pays off the remaining mortgage balance, ensuring that the family or beneficiaries are not burdened with the mortgage debt. Mortgage Life Insurance is unique because it is a declining payout policy. Meaning that at the beginning your benefits cover the entirety of your mortgage and as you continue to make payments, your benefits reduce. This type of insurance is an alternative to Life, Critical Illness and Disability Insurance. It is best to speak with a professional to determine which is best for you and your family.
Title Insurance
Title insurance protects both the lender and the borrower in the case that a financial loss occurs from defects in a title to a property. Examples of what title insurance will protect against includes: fraud, liens, encumbrances, back taxes, or defects in the title or ownership. Title insurance provides assurance to both lenders and homeowners that the property's title has been thoroughly examined, reducing the risk of unforeseen complications or disputes arising in the future. Title insurance is unique in the sense that it protects the insured from past events. If any issues arise and result in financial loss, the insurance policy can help cover the costs associated with resolving them. Title insurance is typically a one-time payment made at the time of the property purchase. The premium is based on the property's value and provides coverage for as long as the insured party owns the property.
In my opinion, since buying your home is already a special, sacred and stressful time, it is well worth it to protect you and your investment from all angles. If you are seeking more information about insurance, please reach out or contact your preferred insurance professional.
