As a homeowner one may have 'insurance' coverage and may feel satisfied with having one. But do you know that 'insurance' coverage can be of several kinds and you may have one kind covering some aspects, yet missing some other kind of coverage? So to begin with, one must know the kind of insurance product they have, and what are they entitled to with this product. Here we discuss some important insurance products:
Default Insurance: When you make a down payment that is any less than 20% of the home value, you need to take insurance compulsorily hence it is called Default Insurance. Default Insurance helps lenders accept lower down payments. Some characteristics of Default Insurance are that a premium needs to be paid based on the loan-to-value ratio. This can either be paid upfront as a single payment or added to the mortgage and thus you will be paying it off along with the monthly payments. CMHC is the most known for offering Default Insurance but there are private companies for the same too.
Home Insurance: Home Insurance provides coverage for the property and against fire. It is compulsory and you must have home insurance before closing the mortgage deal. Home insurance not only protects against fire but can also cover the objects in your home. Of course, what is covered and what isn't depends on your contract with the home insurance coverage provider. Home insurance must be distinguished from strata insurance as it covers a block or properties of a building 'as is' - but you need to find out with your coverage provider if your personal belongings are covered as well. Home insurance may not cover you for natural disasters, and you may have to buy separate insurance for those.
Title insurance: Homeowners may also come across something called 'title insurance' which they would have to compulsorily buy on behalf of the lenders. But homeowners could also buy 'title insurance' on their behalf of themselves to protect themselves from property fraud and also from any liens on the title of the property. Just like default insurance, title insurance too is taken as a premium once and is calculated keeping in mind the property value.
Mortgage Protection Plan: Mortgage Protection Plan is not compulsory, unlike others. It is optional but it is important as it safeguards you from unforeseen circumstances. When your mortgage is approved, it is done on the basis of family income, but in case of unforeseen circumstances such as the death of a family member or accident or disability, a mortgage protection plan comes into the picture protecting you from the mortgage payments. What most homeowners do not know about Mortgage Protection Plan is that if they buy it with the help of a financial advisor they would not be able to transfer it in case they decide to change their mortgage lender at some time in the future. So do ask before signing up for such a plan.
If you have any questions or doubts about insurance products write to us at LendX Financial in Brampton, Greater Toronto Area.