The 6 Types of INSURANCE: Final Summary

Over the last few blog posts, you have learned about many different types of Insurance that are associated with mortgages and the purchase of a house.  I hope you have been able to follow along but, again, if you don’t fully understand yet, I’ll say it again – you are not alone.  Two instances come to mind when I think about how confusing the subject of insurance can be: 

1.      I remember when I first needed Home Insurance and I contacted my friend who is an Insurance Advisor/Financial Planner to ask him if he could help me. 

·         As we know now, Home Insurance is completely different from Life Insurance, which is what Insurance Advisors and Financial Planners specialize in, so my friend was unable to help me.

2.      I also remember when an Insurance Advisor/Financial Planner emailed me to ask me what “Mortgage Default Insurance” was because I kept posting about it on Facebook. 

·         As we know now, Mortgage Default Insurance is completely different from Life Insurance, so it is of no concern to Insurance Advisors and Financial Planners (it is only a concern to you and the lender).

In other words…don’t feel bad if you have more questions or if you have to re-read the blog posts a few times to understand! 

Here is a short summary of all the different types of Insurance we have discussed:

Category 1: Mandatory

Mortgage Default Insurance – protects the lender if you don’t make payments

Home/Fire Insurance – protects the lender (and you) if anything ever happens to your house

Category 2: May be Mandatory

Title Insurance  - protects the lender (and you) if anything ever happens to your title (ownership)

Category 3: Not Mandatory but highly recommended

Contents Insurance – protects you if anything ever happens to the possessions in your house

Mortgage Life Insurance – protects your loved ones if you die by paying off your mortgage balance

Life Insurance – protects your loved ones if you die by paying your loved ones a lump sum of pre-determined money

Well, there you have it folks – the 6 types of insurance that will likely come up when you start talking about mortgages and, believe it or not, all 6 types are sometimes called the same thing and/or mistaken for one another.  The end.  =)

INSURANCE “Half-way there” Recap

Are you still with me?  I know…all this talk about insurance is extremely confusing and there are so many different types!  If you’re still confused, rest assured – you’re not alone.  I will do a full recap of all the types of insurance we’ve discussed in an upcoming post.  In the meantime, please try to keep going and please feel free to post any questions under the comments section!  We’re almost done with INSURANCE.  Here is a quick review of the different types of Insurance that we have learned about so far:

MORTGAGE DEFAULT INSURANCE

·         Mandatory for High-Ratio Mortgages

·         Protects the lender if you ever miss payments

·         Cost is added to your mortgage loan amount and, thus, into your mortgage payments

·         CMHC, Genworth, and Canada Guaranty

TITLE INSURANCE

·         Nowadays, often Mandatory for all types of mortgages (depending on the lender)

·         Protects the lender (and you, a bit) from any defects in title

·         Cost is paid for by you at the lawyer/notary public’s office on completion of your house purchase

HOME INSURANCE

·         Fire Insurance is Mandatory for all mortgages

·         Protects the lender and you if anything ever happens to your house (i.e. It goes up in flames)

·         Cost is paid for by you and can be paid monthly

CONTENTS INSURANCE

·         NOT mandatory but is highly recommended

·         Protects you if anything ever happens to the contents of your house

·         Cost is paid for by you and can be paid monthly with the rest of your Home Insurance payment

Home Insurance and Contents Insurance

So far, you have learned about two different types of insurance: Mortgage Default Insurance and Title Insurance.  Aside from Mortgage Default Insurance and Title Insurance, there are also other types of insurance that are available for home-owners to protect you if something should ever happen to you or your house.  DO NOT get these types of insurance confused with Mortgage Default Insurance.

To ensure that you understand the different types of insurance and do not get them all confused, I am going to briefly explain the other four main types that you will likely encounter during your home-buying process:

·         HOME INSURANCE and CONTENTS INSURANCE

·         MORTGAGE LIFE INSURANCE (or Mortgage Protection Insurance) and LIFE INSURANCE

I will explain MORTGAGE LIFE INSURANCE and LIFE INSURANCE in my next blog entry.

HOME INSURANCE, sometimes called Homeowners Insurance, insures you and the lender if something ever happens to your property.  Home Insurance is a requirement of the bank when you get a mortgage.  There are many different facets to Home Insurance and you can pick and choose what kind of coverage you would like to get for the house.  However, you must obtain fire insurance payable to your lender for all mortgages (for the full replacement cost).  The reason for this requirement is because the bank wants to know that if your house goes up in flames, the property will still be covered and they will be able to recover the money they have lent to you.  Home Insurance can be obtained from a number of companies across Canada, including BCAA (in BC) and Canadian Direct Insurance.  Home Insurance is paid for by you and is usually paid on a monthly  basis.

CONTENTS INSURANCE can be added to a standard Home Insurance plan and I highly recommend this to all home-owners.  However, this is just a recommendation and Contents Insurance is not mandatory.  Getting insurance coverage for your contents (anything that is not attached to the house, such as televisions, computers, jewellery, etc) will provide you with peace-of-mind in case anything ever happens to your house.

Remember:  Home/Fire Insurance is mandatory when obtaining a mortgage and Contents Insurance is recommended.  The above information is a very general overview of Home Insurance and Contents Insurance and you should contact a Home Insurance provider for more detailed information on your options and for rates.