The Four Types of Insurance in a Home Purchase

When purchasing a home you are going to hear the word insurance a few times through your conversations with the people who are going to help you get into your home. It would be nice if we just had one insurance and that covered everything but that is not the case. There are four different types of insurance that will be talked about.

Default Insurance – The first one that you will probably hear about is default insurance. This insurance is offered through companies or groups like CMHC (Canadian Mortgage and Housing Corp.), Genworth, and Canada Guaranty. This insurance is often necessary when you are using less than a 20% down payment. There is some instances where it is required when you have more than the 20% down as well. Default insurance is there to cover the lender. This insurance is basically the bank asking the insurance companies if they think you are going to make your mortgage payments on time. The insurance company will base their decision mostly on your credit and income. This is why it is very important to keep your credit clean. The premium that is charged back to you, the purchaser, is between .60% to 5.85% based on how much you are putting down and how your income is derived. This fee is often added to the mortgage so it does not have to be an out of pocket expense.

Life Insurance – This is the one your mortgage broker or bank will talk to you about. Often offered with disability and/or Critical insurance, all lenders and mortgage brokers will have to offer you this with the mortgage that you end up getting on your new home. This insurance is 100% optional. Do not let anyone tell you that it is mandatory to take with the mortgage. It is however, HIGHLY recommended that you have some sort of insurance on yourself to cover anything that may or may not happen to any of those named on the mortgage. There are a few different types of life insurance options for you to chose from. This is often paid in monthly installments.

Home Insurance – This one is mandatory. On any mortgage that you receive, you will have to have home insurance on the dwelling. This insurance covers you should there be damage due to fire, flood, weather or any other damage type you may add to the policy. It can also cover you should there be an major injury on your property. You will need to have this in line before you get possession of your home. This is paid by either annual or monthly payments.

Title Insurance – There are a couple different types of title insurance. There is Lender’s title insurance and there is Owners title insurance. The Owners insurance is there to protect the purchaser(s) of the property. This could be from title fraud/forgery or other non title defects. The Lenders insurance could cover both known and unknown municipal title compliance issues. Things like if a deck is built over a utility right of way and the city needs to access that right of way. Insurance could cover the removal of the deck. For more information on Title insurance, you can access the Real Estate Council of Alberta’s information on these insurances by clicking here RECA. Title insurance costs  are added on with your legal fees.

Insurance is never a fun thing to talk about but it’s not something that you can or should avoid either. Knowing the differences in all the insurances will help you be prepared for your purchase and make it easier on you when this information is brought up.

Thanks for reading. Call, text, or email anytime.

Scott Bourke

Regional Mortgage Group – Mortgage Alliance    403-598-1055

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