Not all insurance products are equal in Canada. One of the most common mistakes made by Canadian homeowners and potential homeowners is assuming they have insurance coverage without fully understanding their policy. While you may have one type of insurance, it is possible that you may not have coverage in other areas. It is crucial to comprehend all the various insurance products to ensure you have adequate coverage. To aid in your comprehension of insurance, the following are the four primary insurance product options you will encounter in Canada and their respective meanings:
Default insurance is a crucial component of the Canadian housing market that helps to support homebuyers. If you’re purchasing a home with a down payment of less than 20%, this insurance is mandatory. However, the good news is that default insurance enables lenders to accept lower down payments, including a minimum of 5%, and still provide comparable interest rates typically offered with larger down payments.
When it comes to default insurance, a premium is usually required, which is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). This premium can be paid as a single lump sum, or it can be included in your mortgage and paid as part of your monthly payments.
In Canada, most homeowners are familiar with the Canada Mortgage and Housing Corporation (CMHC), which is a federal government agency that provides default insurance. However, it’s worth knowing that we also have two private companies, Sagen Financial and Canada Guaranty, that can provide this insurance. By having access to multiple options, homebuyers can choose the default insurance provider that best suits their needs.
Home (Property & Fire) Insurance
As a mortgage agent, I highly recommend that you prioritize obtaining property and fire coverage, also known as home insurance, which is a mandatory insurance option for homeowners. In fact, it is the second most important insurance coverage that you need to have in place before closing your mortgage. It is worth noting that not all homes or properties are insurable, so it’s a good idea to review your insurance options with a professional as soon as possible.
Home insurance provides protection against fire damage and can also cover the contents of your home, depending on the policy. This is especially important for those considering purchasing condos or townhouses, as the strata insurance typically only protects the building itself, common areas, and your suite “as is”, but does not cover personal belongings or upgrades. Therefore, it’s vital to cross-check your strata insurance policy and take out an individual insurance policy on your unit to cover any gaps in coverage.
It’s also essential to keep in mind that you may not be covered in the event of a flood or earthquake. Depending on your location, it may be necessary to purchase additional coverage to protect yourself from natural disasters. As your mortgage agent, I can guide you in what questions and referrals to the right insurance coverage for your home and provide you with helpful advice to ensure that you have comprehensive protection.
As a potential homeowner, you may encounter another type of insurance policy known as “title insurance”, which is an important insurance coverage that you should consider obtaining. In fact, every single lender in Canada requires title insurance to be purchased on their behalf.
In addition to satisfying your lender’s requirements, you also have the option of purchasing title insurance for your own protection. Title insurance offers many benefits, including protection against existing liens on the property’s title and most commonly, protection against title fraud. Title fraud occurs when someone uses stolen personal information or forged documents to transfer your home’s title to themselves without your knowledge or consent.
Title insurance, like default insurance, is charged as a one-time fee or premium, and the cost is based on the value of your property. As your trusted advisor, I can help you navigate the process of obtaining title insurance and provide you with the necessary information to make an informed decision. With title insurance, you can have peace of mind knowing that you are protected from potential risks associated with the title of your property.
Mortgage Protection Plan
Mortgage Protection Plan is an optional insurance policy that is highly recommended to homeowners. This policy provides disability and life insurance coverage for your mortgage, protecting you and your family in case of unforeseen events.
It’s important to note that the Mortgage Protection Plan is actually a type of life insurance, and therefore it can stay connected to you as a person, even if you decide to switch lenders. If you buy this policy through your bank, financial advisor, or life insurance agent, the policy will not be transferable to a new lender.
However, Mortgage Architects agents have an exclusive opportunity with Manulife to offer their clients a Mortgage Protection Plan that stays with them for the life of their mortgage. This means that if you purchase this plan through Manulife, you can rest assured that your coverage will not be tied to a specific lender. So, if you decide to switch lenders at any point, your protection will come with you. This is unlike other similar products where the plan is specific to the lender, and you would have to requalify for the policy if you wanted to switch lenders, potentially at higher rates.