What are the 4 types of insurance in a mortgage transaction?
How do the different types of insurance cover you?
These are some questions that you may have in regards to the types of insurance you need and the types of insurance that is offered during a mortgage transaction. The 4 types of insurance in a mortgage transaction are mortgage default insurance, homeowners insurance, title insurance, and life and disability insurance. Depending on your situation you may need all 4 or a combination of these insurances to help protect you, your mortgage, and your home.
- Mortgage default insurance is a mandatory mortgage charge for all home purchases with less than a 20% down payment. The purpose of mortgage default insurance is protect the lender if a mortgage goes into default. This insurance will encourage more lenders to provide mortgages to more consumers. There is a mortgage default insurance charge that is included on your mortgage on those mortgages with less than 20% down
- Homeowners insurance is required for all homes in Canada where a mortgage is required. The lawyer will not provide a complete file until there is homeowners insurance arranged for the new home. With many different providers of homeowners insurance the coverage and terms vary but it can be used to protect your home, the contents of your home and yourself in liability concerns.
- Title insurance is an optional insurance that is used to protect your rights for owning that property for as long as you own that property. It is used to protect you from problems related to the ownership of the home or the title of your home. It protects you from fraud and forgery regarding the title, other people not being removed from the title, survey errors that would be found in a new survey, easements, and zoning problems. Title insurance can be purchased when you buy a home or refinance it as a one time charge usually at the time of closing.
- Life and disability insurance is another optional insurance that provides protection in the case of death or disability where the mortgage cannot be paid. Life insurance protects the borrower(s) against death as your outstanding mortgage balance will be paid in full. With the disability insurance if the insured person becomes disabled the monthly mortgage payments will be made on their behalf. The coverage is offered at the time the mortgage is arranged and is offered through monthly payments. Disability insurance may have a waiting period before it kicks in and may have a maximum period of time covering payments.
The insurance offered in a mortgage transaction help protect all aspects of the mortgage, home and person. Developing an insurance plan that is right for you depends on the type of coverage and degree of coverage you want.