4 Types of Home Insurance in Alberta

4 Types of Home Insurance in Alberta. Why you might need all four as a first time buyer.

I get this question a lot with first-time homebuyers, “what is with all the types of home insurance?”

And, it can be an incredibly overwhelming experience, especially as getting all these types of insurance are in the final stages of the buying process. But, there’s a need for all of them, especially as a first-time buyer. 

Home Insurance Type #1: Mortgage Default Insurance

Mortgage Default Insurance is required for those with a High-Ratio mortgage: meaning if you’ve put less than 20% down, or other borrowers with higher risk. This policy is in place to protect lenders from risk of borrower default.

This type of insurance is added to the principal amount of your mortgage. It is then repaid over the same amortization period. 

Exactly how much you will pay for mortgage default insurance will depend on how much you have available for down payment. If you have a larger down payment, the less you’ll have to pay for this premium.

Who exactly gets this premium? There are three insurers in Canada; Canadian Housing and Mortgage Corporation (CMHC), Sagen, and Canada Guaranty. When your mortgage is closed, your lender will pay the insurance premium.

If you are putting less than 20% down, you will have to pay this premium. The best way to reduce the cost is to have a higher down payment or used accelerated bi-weekly payments to reduce the amount of interest you’re paying over time.

Home Insurance Type #2: Home and Fire Insurance

Before you even move into your new home, you’ll need to provide proof of home and fire insurance to your lender. In fact, your mortgage won’t fund unless your lender sees proof of fire insurance. This insurance will pay out your lender in case your home burns down.

Home insurance is a no-brainer. You want to protect your investment and everything inside. Speaking with a home insurance representative (who I can recommend!) will help you find the right insurance for you.

Home Insurance Type #3: Life and Disability Insurance

Now the morbid one that most avoid talking about… Who pays the mortgage balance or monthly payments if a homeowner dies, is injured or is disabled?

Life and disability insurance has you covered in these cases. There are variations of these types of insurance as well. For example, Mortgage Life Insurance pays off your mortgage in the event of your death. However, this insurance only pays off the mortgage while other costs will continue, such as utilities, maintenance, etc.

When you’re in the final stages of your home purchase, you’ll want to speak to a licensed life insurance broker. They will be able to provide you with more options versus what your lender can offer you. You don’t want to be wasting money with a high premium that only takes care of one aspect of your mortgage if you pass away!

Final Type of Home Insurance: Title Insurance

Among all the paperwork you’re signing at the lawyer’s, you may notice a premium for Lender Title Insurance (yes, another premium). 

There are two components to home title insurance—the owner’s policy and the lender’s policy. You will typically need to purchase both. But don’t worry. These are one-time premiums between $150 – $300.

The lender’s title insurance protects your lender from losses if errors were made on the paperwork for your mortgage, such as incorrect information on your real property report. The owner’s policy covers you when disputes over who has rights to your property come up.

These disputes can include tax liens, easements, property lines, zoning issues, and even identity theft. Title insurance confirms that you have legal ownership of the property and is valid as long as you own the property.

The owner’s policy covers the entire purchase price of your home while the lender’s policy is often just for the amount of the mortgage. 

Is all this insurance information making sense? While I know it’s not the most interesting thing, insurance is one of the most important aspects of buying a home. I’ve been through my fair share of insurance documents, so if you need help figuring out what you need and who you need to talk to, I’d love to help! Send me an email and let’s find the right insurance for you.