What Type of Insurance Do I Need? – Part Three – Home Insurance
In the past two weeks, we’ve discussed two of of the four types of insurance products you will contend with during the homebuying process. The first was Mortgage Default Insurance, known to many as CMHC but also provided by Genworth and Canadian Guarantee. The second was Mortgage Life and Disability Insurance and the third, which will be the topic of todays article, is Home Insurance.
Home insurance protects you and your lender from loss in the unfortunate event that your home is damaged or destroyed by fire, storm or other hazards. Home insurance falls into the “Not Optional” side of the ledger for those keeping track, as all lenders in Canada will require mortgagors to obtain home insurance for the full guaranteed replacement value for their new property.
Infact, they will require the policy to be maintained throughout the mortgage term as cancellation of the policy is a breach of the mortgage loan contract with the lender. If a home insurance policy is not maintained, the lender has the right to demand the mortgage be paid in full immediately. Of course, you can change your policy or your insurance company as your policy allows, but whenever a change is made, your lender will need to be made aware of the new details.
While a fire insurance policy is the minimum requirement by the lenders, homebuyers and owners, will want to consult with a professional insurance broker about the benefits of broader coverage and add on policies like earthquake insurance and sewer back up coverage.
Being a mortgage brokerage, we are by no means experts in this type of insurance and therefore unable to offer any advice in this regard other than to inform you that homeowner insurance is a requirement of obtaining a mortgage. We are happy to refer our clients to Marsh Private Client Service for answers to any questions they may have in regards to home and property insurance for for a free online quote.
In addition, here are some links with some useful info to assist you in the process of obtaining home insurance…
Your Mortgage Broker will not require evidence of your new policy for the mortgage approval process but they will advise you to have your insurance agent fax what is called a “binder letter” to your solicitor prior to your appointment to sign the final legal paperwork. The letter will confirm that you have arranged the coverage for the full guaranteed replacement value and it is required to show the names and address of the lender providing your mortgage. The binder letter will also confirm that the coverage is effective on the possession date and that the mortgage lender is listed as a Loss Payee under the policy.
Please feel free to contact one of our Mortgage Brokers to discuss in more detail what lenders require in regards to home insurance and be sure to check back next Friday to take a look at the last type insurance you will encounter when purchasing a home – Title Insurance.