Mortgage Blog

What Types of Insurance Do I Need When Buying a House?

January 29, 2019 | Posted by: Brandi Pierik and Matthew Pierik - Red Deer and Calgary Mortgage Brokers

We Discuss 4 Types of Insurance Involved in Your Home Loan

What Types of Insurance Are Involved When Buying a Home?

The many different types of insurance you’ll come across when buying a home in Red Deer may seem overwhelming. It’s important, however, to understand each one to ensure you’re making an informed decision.

Below is a breakdown of the four main insurances you’ll want to comprehend to protect you and your family when making among the largest financial purchases of your life.

Homeowners’ Insurance
It’s important to ensure your house for its rebuilding costs in the event of serious damage or destruction. Your insurance agent can walk you through the specifics so you know exactly what you’re buying and how it will protect you when you need it the most. Not only do you need to know what’s covered, but it’s also important to understand the contractual obligations within your policy. You can choose to insure your home and belongings for either their replacement cost or actual cash value. Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. Actual cash value is the amount it would take to repair or replace damage to your home after depreciation. Be sure to also compare deductibles – the out-of-pocket amount you have to pay when you make a claim. A policy with a $100 deductible will cost more than one with a $250 deductible, and higher deductibles are typically available at a reduced price. Think about how much you could afford to pay out of your own funds if you had to make a claim.

Mortgage Life & Disability Insurance
This coverage protects you in the event that you become sick, injured or worse and can’t pay your mortgage, as it provides your family/dependents with the needed funds to pay off the mortgage. Be sure to opt into this coverage when signing your mortgage documents because you’re protected immediately – even if the property has not yet closed. This is important because, once you sign the purchase agreement, you’re obligated to close on that contract. And if you wish to visit an insurance agent down the road, at least choose mortgage life and disability insurance in the meantime. Canceling is the easy part. Many times, people believe they’re covered by their work benefits plan for life and disability insurance. In most cases, workplaces don’t even come close to providing enough coverage when tragedy strikes.

Mortgage Default Insurance
This is mandatory insurance you must have when buying a property and making less than a 20% down payment. While mortgage life and disability insurance protect you, as the borrower, mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan. This insurance empowers Canadians, who may otherwise not be able to purchase homes, to be part of the real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are typically able to offer lower mortgage rates when mortgages are protected by mortgage default insurance because the risk of default is passed along to the mortgage insurer.

Title Insurance
Most lenders require title insurance to protect against losses in the event of a property ownership dispute. It protects both the homeowner and lender from the possibility that the seller – or previous sellers – fail to have free and clear ownership of the house and property and, therefore, can’t rightfully transfer full ownership to you.

Do you have questions about insurance you need when purchasing a Red Deer home or your mortgage in general? Answers are a call or email away! Contact your Red Deer Mortgage Broker, Brandi Pierik, Dominion Lending Centres at 403-588-8657

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