Although many people are familiar with the general idea of insuring where you live, not everyone understands there are several different types of real estate insurance and that the coverage you need will depend on your situation. For example, even if a landlord has insurance, it will not cover you as the renter unless you have tenant insurance, more commonly known as renters insurance. Besides landlord insurance and renters insurance, there is high ratio insurance, mortgage insurance, home insurance, and title insurance to be aware of in Ontario. Understanding the various types of insurance that are available to you as a homeowner, renter, or landlord can be challenging, but this article will clarify the misconceptions surrounding real estate insurance and explain some of the most common types of insurance that you should be aware of.
Landlord insurance financially protects your rental property in the case of an insured loss or damage to the building, property, or certain personal belongings like major appliances. Anyone thinking of renting out their property should consider landlord insurance since it is an essential way to safeguard your assets and protect your financial stability. For example, if your property faced significant losses like a fire or tornado and you did not have landlord insurance, you would be responsible for the entirety of the repairs or rebuild, even if it was significantly more than your initial investment. Furthermore, landlord insurance provides you with protection from lawsuits since you could be held responsible for any accidents or mishaps that your tenants have on your property. Therefore, landlord insurance not only protects you from any losses incurred while renting out your property to a tenant but also covers you in the event of unexpected accidents that cause substantial losses or damage
Although landlord insurance is not mandatory in Ontario, if your rental home has a mortgage, it is very common that the financial institution may require insurance on the property. Moreover, your standard home policy does not cover your rental property and is often explicitly excluded from a homeowner’s insurance policy. It is excluded because home insurance and landlord insurance are meant to cover different things and therefore need to be separate policies. Another thing to understand is that landlord insurance does not cover the tenants living there; they would be expected to get renters insurance to ensure they are covered. Overall, landlord insurance is critical to look into, especially if you rely on your tenant’s rent each month, so that in the case of emergency, damages, or losses you are covered and do not ultimately face financial ruin having to repair your property out of pocket.
Renters insurance covers you financially if something happens to your belongings or if you are forced from your home because of a covered claim or evacuation order whilst you are a tenant. Typically in Ontario, basic renters insurance will cover property damage, personal liability, and additional living expenses in the case something happens to the rental property and you can’t stay there. However, the exact coverage details will vary, so make sure you are familiar with what is covered and what is not with each policy. Sometimes, a landlord will make it mandatory for a tenant to have renters insurance, although it is not required by law in the province of Ontario. As mentioned above, renters insurance is completely separate from landlord insurance, so to ensure your personal items are covered, as well as any unforeseen additional expenses, it is recommended to look into renters insurance if you are a tenant.
An advantage to renters insurance is that it is typically more affordable than an average home insurance policy and is tailored to meet the needs of the tenant. Furthermore, it is a good idea to have renters insurance if you could not afford to replace all of your belongings if something happened. Of course, no one wants to prepare for or even think about losing and having to replace all of their belongings, but that is why it is better to have renters insurance and not need it, rather than need it and not have it. Ideally, both the landlord would have landlord insurance and the tenant would have renters insurance since the policies are customized with the individual's needs in mind and ultimately cover different things.
High Ratio Insurance
High ratio insurance is required by lenders when you make a down payment of less than 20% of the purchase price of the home. They do this to eliminate risk on their end, and so they are protected if you default on your mortgage. High ratio insurance does not relieve you of your debt obligation if you default on your mortgage; it only ensures that the lender is compensated. However, it does allow buyers to purchase a home with as little as a 5% down payment. Furthermore, the interest rates are comparable to those with a 20% down payment, which has really helped Canadians over the years secure a home they might not have otherwise been able to. Although this process is available for anyone, first-time homebuyers are typically more likely to fall into the high ratio mortgage insurance category.
In Canada, there are three high ratio insurance providers: CMHC, Genworth, and Canada Guaranty. In order to get high ratio insurance, your lender will pay the insurance premium and then most likely pass the cost onto you by adding it into your monthly payments. This is something to watch for, and the premium is based on a percentage of the home’s purchase price that is financed by a mortgage. Also, if you are qualified for a better deal when it comes time for renewal, or if you want to increase your original loan amount in the future, you only have to pay an insurance fee on the additional amount borrowed. Overall, it is important to remember that high ratio insurance does not cover you as the home buyer but rather protects the lender from risk and enables them to offer you extremely competitive rates. Often utilized by first-time buyers, high ratio insurance can be an excellent option for those looking to break into the housing market as a buyer.
Having the right insurance coverage tailor-made to suit your needs means that you are protected in the case that something happens to you, your property, or your belongings. Of course, nobody wants to deal with the financial burden that can come along with unexpected incidences that occur in your home or on your property. That is why being aware of the various kinds of available real estate insurance in your area and how these policies can safeguard your assets is critical so you can make informed decisions whether you are a landlord, renter, or homeowner and select the right type of coverage for your situation.
So if you are tired of worrying about the ‘what-ifs’ that come along with living somewhere, protecting yourself with proper insurance coverage is one of the best things you can do for yourself and your family. Although landlord insurance, renters insurance, and high ratio insurance are only three of the six types of insurance available in Ontario, it is important to have a working knowledge of these basic policies before moving onto the more complex topics of mortgage insurance, home insurance, and title insurance. For these topics, be sure to click over to Understanding Different Types of Real Estate Insurance: Part II!