Anyone who is currently in the process of buying a home knows just how many steps are involved. From determining how much home you can afford, saving for your down payment, finding the home, and being approved for a mortgage. While that seems like many steps to buy a home, there are many more, including getting home insurance.
That’s right. On top of being a smart idea overall to better protect yourself and your property, home insurance is required for individuals who have a mortgage in Canada. So, before you move in, you better ensure your home insurance policy is in place. Otherwise, you won’t be given the keys to your new front door.
Here’s what you need to know about when to get home insurance when buying a home in Canada.
Key Takeaways
- Mortgage lenders will require you to have home insurance in place before you can close on the property.
- Your real estate lawyer will request a copy of your binder letter, which acts as temporary proof of insurance.
- Allocate time to shop around and finalize your home insurance in advance to avoid delaying your closing date.
Is it Mandatory to Have Home Insurance in Canada?
In Canada, if you have a home with a mortgage, you must have home insurance. The mortgage lender will require this from you since, as much as the home is yours, it is also an investment on your lender’s behalf. As such, it’s no surprise that they want to protect it.
Once you pay off your mortgage and own your home outright, homeowner insurance is no longer a requirement. However, it’s still in your best interest to have home insurance to protect your home and personal property.
Do You Need Home Insurance Before Closing in Canada?
Since home insurance in Canada is mandatory if you have a mortgage, it is something you need to take care of as part of the home buying process, not something you can just leave and worry about later.
There are two times in the home buying process when you may need to prove that you have a homeowner’s insurance policy in place. The first instance is if you include an insurance condition in your initial offer. In this case, you would include this condition to ensure the home is insurable before you commit to purchasing it.
If you don’t have an insurance condition on your home purchase offer, you’ll still need to have a policy in place before closing. In this case, your real estate lawyer will request a copy of the “binder letter” from the insurance company. The binder letter confirms that your insurance policy will become active on your closing date for the home in question. The binder letter usually shows the dollar value of your coverage and the mortgage company as the first payee on the policy.
When it comes time to close your home and take possession, you must show that your home is protected. Without insurance, you won’t be able to close the sale and move into your home. Your real estate lawyer or agent cannot release the keys without receiving the insurance binder to show that home insurance has been purchased and is in place.
How Long Does it Take to Get Homeowners Insurance?
How long it takes to get a home insurance policy depends on the provider. In some cases, you can get homeowners insurance by calling your policy provider and talking to them on the phone, while other insurance providers may take a few days or even a couple of weeks to finalize. Not only do you need to consider the amount of time it takes to get the insurance, but you also need to allocate time to shop around and find the right product for your individual needs.
While buying home insurance is now easier than ever due to the Internet, it’s still essential to research and compare lenders and products. For this reason, it’s a good idea to get a jump-start on finding home insurance as soon as possible and not leave it until the last minute, primarily because coverage is usually mandatory when you have a mortgage. While you don’t need months to get your insurance policy lined up, you want to give yourself at least a few weeks.
Why Do You Need Home Insurance When Buying a House?
As mentioned earlier, homeowners insurance is mandatory if you have a mortgage because your lender wants to protect their investment. However, while home insurance is vital for the mortgage lender, it is equally essential for you as the homeowner because it protects your investment, your possessions and your personal liability.
In Canada, home insurance typically has two parts. The first is the protection of your property and personal possessions. This aspect covers your home, personal property, valuables, and even your car against loss or damage.
The second part is liability coverage. Liability insurance protects you against legal action for any loss or damage caused by injury to other people or damage to another individual’s property.
In an ideal world, you won’t need to worry about any issues. However, should something happen, you want to ensure that you have coverage in place to protect yourself and your property. Homeowners insurance helps do just that.
What Does Homeowners Insurance Cover?
Home insurance coverage will come into play in cases where:
- Damage occurs to your home or other structures on your property
- If your personal belongings are damaged, this coverage can include instances when your possessions are away from your home, such as when your laptop is stolen from your vehicle
- Accidental damage to someone else’s property caused by you, or family members who live in your household
- If someone is accidentally injured on your property, homeowners insurance may cover related expenses like legal fees and medical bills
On the same note, home insurance does not cover some things, like water damage and flooding, pests, vacant properties, and, in some cases, valuables (often only insured up to a certain amount).
Of course, each policy is different, and you need to always read the fine print and ensure you understand the terms and conditions of your specific policy. Again, take the time to shop around and discuss your options and coverage with insurance providers to find the best option and coverage for you.
