For Canadian homeowners, protecting one’s property is of utmost importance. With the ever-present risks associated with homeownership, having the right insurance coverage is crucial. Check out our Guide to Home Insurance for Canadians!
What are the various types of home insurance? What types are mandatory? And what is the right coverage for you?
Let’s go through the basics:
- Mortgage Default Insurance
- Property & Fire Insurance
- Title Insurance
- Strata Insurance
- Tenant Insurance
- Mortgage Protection
Default Insurance
Default insurance, also known as Mortgage Default insurance, is mandatory in Canada when a homebuyer makes a down payment of less than 20% of the property’s value. This insurance protects lenders in case the borrower defaults on their mortgage payments.
The most common provider of default insurance in Canada is the Canada Mortgage and Housing Corporation (CMHC). Other private insurers, such as Genworth Canada and Canada Guaranty, also offer this coverage.
Default insurance provides financial security for lenders, enabling them to offer mortgages to borrowers with smaller down payments. It helps promote homeownership and ensures a stable housing market by reducing the risk associated with high loan-to-value ratio mortgages.
Property and Fire Insurance
Property and Fire insurance, also known as Homeowner’s insurance, is essential for all Canadian homeowners. This type of insurance protects your property and its contents from various perils, including fire, theft, vandalism, and natural disasters. It covers both the structure of the home and personal belongings inside it.
Again, this type of insurance is mandatory if you own a home in Canada, and it must be in place prior to your home purchase closing.
When choosing property and fire insurance, it is important to consider the replacement cost of your home and also possessions, as well as any additional coverage you may need, such as coverage for expensive jewelry or artwork. It is also vital to review the policy’s exclusions and deductibles.
Also remember that depending on where your home is geographically located, you may not be able to get coverage for such things as flooding or earthquakes. Be sure to discuss this with your insurance provider.
To determine the appropriate coverage, it is advisable to conduct a thorough inventory of your belongings and consult with insurance providers to ensure you have adequate protection. An accredited insurance advisor can also help you figure out what amount would be the best coverage in your situation.
Title Insurance
Title insurance is designed to protect homeowners and lenders from any legal or financial issues related to the ownership of the property. It provides coverage against potential problems with the property’s title, such as undisclosed liens, encroachments, or errors in the public records.
Title insurance is typically obtained during the home purchase process, and it offers peace of mind by ensuring that the property’s title is clear and free from any potential claims. It can also cover legal fees in case of a dispute over ownership.
Not only is Title insurance mandatory with every single lender in Canada requiring you to purchase title insurance on their behalf, it is also highly recommended to protect homeowners from potential risks that may arise from past ownership issues.
Strata Insurance
If you own a condominium or townhouse, you may need Strata insurance. Strata insurance, also known as condominium insurance or unit owner insurance, is specific to multi-unit residential buildings where each owner holds a separate unit.
Strata insurance typically covers the building’s common areas, such as hallways, elevators, and recreational facilities, as well as the structure of the individual units. It also provides liability coverage for the strata corporation and individual unit owners.
In recent years, the cost of strata insurance has increased significantly in some regions of Canada due to a rise in insurance claims and rebuilding costs. It is important for homeowners to review their strata insurance policy and understand its coverage and any additional deductibles or limitations.
Related: The Difference Between a Freehold and a Condo Home?
Tenant Insurance
What if you’re renting an apartment or house? What are your insurance needs?
Tenant insurance, also known as Renter’s insurance, is a type of insurance designed to protect people who rent their homes in Canada. While the landlord may have insurance coverage for the building, it typically does not extend to the tenant’s personal belongings or liability.
Tenant insurance provides coverage for personal property, including furniture, electronics, clothing, and other valuables, in the event of theft, fire, or other covered perils. Additionally, it offers liability protection in case someone is injured on the rented property and holds the tenant responsible.
Tenant insurance is important because it provides financial security and peace of mind to tenants by reimbursing them for lost or damaged belongings and covering legal expenses in case of a liability claim. It ensures that tenants can recover from unexpected events and continue their daily lives without significant financial burden.
Mortgage Protection
No one likes to imagine the worst-case scenarios, but when it comes to insurance, it’s important to be prepared. Mortgage Protection is an optional (but important) coverage to have, in case you or your spouse are no longer able to contribute to the mortgage each month. No one would want to lose their home after an unexpected, life altering accident, so it’s something to keep in mind.
This type of insurance would protect you and your family by covering the remainder of your mortgage in the event of serious disability or death. Typically when you’re approved for a mortgage this will be offered to you. You can decide if your life insurance or personal disability coverage is enough to cover the mortgage, or if you require this additional mortgage-specific type of policy.
As a Canadian homeowner, it is vital to understand the various types of insurance available to protect your investment. From default insurance and property and fire insurance to title insurance, strata insurance, and mortgage insurance, each policy serves a specific purpose in safeguarding your home and financial well-being.
Carefully consider your specific needs and consult with insurance professionals to ensure you have adequate coverage. Regularly review your policies to accommodate any changes in your property or circumstances, and always prioritize protecting your home and assets for a secure and worry-free homeownership experience.
