Home insurance is coverage that you buy to protect your home and the valuables and belongings in it in the event that something bad happens to them. A common topic of confusion about home insurance is if it is required for those who own a home. When it comes to home insurance in Canada, it is not required by law for you to have insurance on your home, both as a homeowner or renter, and even as a landlord.
However, if you are getting a mortgage from any lender, you will need home insurance as a requirement to close on your mortgage, and you will need to maintain coverage for as long as you have your mortgage. This requirement will be stated in your mortgage contract when you sign it.
Even though home insurance is not mandatory in Canada, it is common for people to even without mortgages to pay for it monthly, as a way to protect their home and belongings from damage. Since home insurance coverages will protect against different risks, it’s always important to find coverage that meets your needs.
When Can Home Insurance Be Mandatory?
With a Mortgage
Your lender will require coverage to protect the home they give you a mortgage for.
Your condo board may require individual unit coverage to protect your unit and other units from damage.
Your landlord may make you have tenant insurance to protect their property from any damage.
Why Will You Need Home Insurance With a Mortgage?
The biggest reason that you will require home insurance with a mortgage is because the bank wants to protect its investment. Considering that the bank has given you most of the money to purchase a home in the form of a mortgage, they stand to lose substantial amounts of money if something happens to the home and you do not have any insurance coverage.
If something is to happen to your home and there is no insurance, such as if there’s a fire, it is unlikely you will continue to make payments and will just default instead. This is why Lenders include home insurance as a requirement to getting a mortgage loan in your mortgage contract, and also why you need to obtain home insurance coverage before your home closing date.
Even when you do get coverage before you close on your home, you will need to provide your lender proof of coverage.
Usually, mortgage lenders will require you to have enough insurance coverage for the full replacement cost of your home, however, the amount you’re required to have will depend on your lender and mortgage terms.
Some lenders may even allow you to just get as much coverage as your mortgage amount is, however, this may leave you with not enough money to rebuild your home or cover damages. Besides just a mortgage, even if you have your home paid off in full and want to get a home equity line of credit (HELOC) from a lender, they will also require you to have home insurance.
What Other Scenarios Will You Need Home Insurance?
Another scenario that you may be required to have home insurance in is if you live in a condo or apartment with a condo board. It may be mandatory that you need condo insurance as part of the rules of the condo board, in order to protect your home and other units from any damage.
Even if your condo board does not require insurance and has coverage through your monthly fees, it is still a good idea to have. This is because the insurance your condo fees will cover will not protect your unit from damage or theft. Instead, this coverage will only be for common areas and the general building.
Another scenario where you may require coverage is in the form of tenant insurance. Tenant insurance will protect you if something is to happen to the property you are renting or your belongings.
Your landlord may include having personal tenant insurance as a requirement before renting to you, in order to protect the property from any damage.
Why Should You Get Home Insurance if Your House is Paid Off?
Even if you have your house fully paid off and you no longer require home insurance because you have no mortgage, it is still suggested that you have it just in case.
If something is to happen to your home such as a fire, burglary, or flood among other things, you will have coverage depending on the extent of your policy.
Without coverage, you will be left in a tough spot having to pay for potentially expensive damages out of pocket. As well, besides just something happening to your home, home insurance will protect you from liabilities from incidents that could happen on your property, such as a slip and fall accident.
How Are Your Monthly Premiums Calculated?
Your home insurance premium will be calculated based on a variety of factors, with common ones being:
The type of coverage you get,
Your homes replacement value,
Your home’s age,
Where your home is located,
Your home insurance claims history, and
Characteristics about your home
If you are getting a home insurance quote online or are meeting with a representative, they will require information about all of these factors. Using this information, they will determine how risky your home is to cover, and based on their assessment they will inform you of your monthly premium.
One of the main components of your monthly premium that you will be able to control is what you cover and how much coverage you get. If you choose to cover your property for the full replacement value of your home and all the valuables and furnishings you have, it will be reflected with higher monthly premiums.
If you decide to only cover a few valuables in your home and choose a lower replacement value to cover, you will save money on your monthly premiums, however may be stuck paying out of pocket in the event something does happen to your home.
As well, how you choose to cover your home will also affect your monthly premiums. The more types of coverages that you add on, the more expensive your monthly premiums will be. Examples of add-on coverages include:
Sewer backup insurance,
Home-based business insurance,
Identity theft coverage, and
Depending on your home’s age and where you live will play an important role in determining if these coverages are worthwhile to get for your home.
In conclusion, although home insurance in Canada is not mandatory by law, you will still need it if you are getting a mortgage. Even if you do not have a mortgage and do not require home insurance on your property, it will still provide you both peace of mind and protection for what may be your biggest and most important asset.