There's more involved in buying a home than finding the right property and qualifying for the mortgage. It's smart to protect against different types of loss, although it's not mandated by law. It's not always easy.
Prospective buyers all realize that there are more costs attached to a home purchase than the mortgage and the price of new furniture. Insurance is one of those costs, and it's important to be aware of requirements that protect the lender, as well as assessing the need for additional coverage to protect personal interests and capital investment.
Mortgage Default Insurance
A mortgage default policy, commonly known as CMHC insurance in Canada, is required for all loans with down payments between 5 and 19.99%. Premiums are calculated on a sliding fee scale that takes into account the price of the home, the amount of the down payment and the length of the loan term. Payment are made for the duration of the loan, "bundled" with principal, interest, taxes and other standard monthly charges.
Three Canadian companies provide CMHC insurance and, as of March 2017, rates varied between 4% and 2.80%.
Most lenders also require that buyers show evidence of property coverage insurance in an amount at least equal to the dollar amount of their investment, either the loan amount or structural replacement value. Regardless of the dollar amount, owners should assure that their property coverage is adequate to repair the structure in case of loss. It may be less that the appraised value, however, by the dollar amount of the land. Because building costs vary from one area to another, rates also vary.
All insurance is a form of risk management. It's not easy to manage all possible risk, but a knowledgeable insurance agent will help design coverage to meet specific needs. There is no "one size fits all" coverage; Ask pertinent questions.
This most inclusive type of insurance covers the structure and its contents, up to the limits an owner chooses or a lender requires. It is important to understand the limits of coverage, and the terms that are used. The Insurance Bureau of Canada lists "insured perils" such as "aircraft and vehicle impact," explosion, fire, lightning, riot and theft," among others; and "uninsured perils" that include such things as insect and rodent damage, earthquakes, floods, war and terrorism, and damage caused by "critical acts" of the owner. Optional coverage is sometimes available for some perils, including earthquakes and sewer backups.
A type of insurance that covers only what is specifically stated in the policy. Although not as inclusive as a normal comprehensive policy, this is often a less expensive option, and can be a compromise for owners who can assume a greater personal risk.
Another economical option: This type of policy includes coverage on "big-ticket" damage to the building, but stipulates specific perils that would constitute a claim for the contents.
Offered by some companies for property that does not meet standards for standard insurance. No Frills coverage is a limited option solution, and may represent a temporary solution for some owners.
Sometimes termed "slip, trip and fall" coverage, this is a wise choice to limit owner liability for injury to others that may occur on the property. In a litigious society, it offers valuable protection against financial ruin.
Property insurance is not mandated by law, but because a home represents a major financial investment, it would be unwise to be uninsured. There's also the option of a home warranty to protect your home. It is important to maintain records of improvements, and adjust coverage when property values rise. Adequate personal property coverage is also vital; Maintain an inventory of furnishings and antiques, art, jewelry and collections, and update values as needed.