Friday, September 15, 2023
Buying a home is one of the most significant financial investments you’ll make in your lifetime. It’s not just about finding the perfect property; it’s also about safeguarding that investment against unforeseen risks and challenges. This is where various types of insurance come into play.
For many years, we did not buy mortgage insurance; we found it expensive, and we didn’t need it as we had enough of a passive income buffer if an unexpected health issue arose. We have recently begun giving it a second look as some advantages now fit our situation.
Here are three types of insurance we recommend all homeowners look into when purchasing a home: title, property, and mortgage. After clarifying your options, your wisdom will flow because you’ll make an informed choice.
I. Title Insurance: Securing Your Ownership Rights
Imagine buying your dream home, moving in, and receiving notice that someone else claims to own part of your property. This is where title insurance proves its worth. The insurance company protects you against title defects and disputes.
Here are a few things it gives you peace of mind against:
☞ Hidden Liens and Encumbrances: Title insurance covers you in case there are hidden liens, unpaid debts, or encumbrances on your property’s title. Liens are legal claims or rights that other parties may have on your property.
For example, if the property’s previous owner had outstanding debts or loans secured by the property, those debts can become your responsibility as the new owner. Title insurance can protect you from having to pay these unpaid debts.
Another example is a case of easement. This legal right allows someone else (individuals, utilities, or companies) to use a specific portion of your property for a particular purpose. This could include utility easements, which grant utility companies access to install and maintain infrastructure on your land, or a neighbor’s right of way across your property to access their land.
A third situation could be encroachment. This happens when a part of one property, such as a building or fence, extends onto someone else’s property. They can affect the use and boundaries of the properties involved. If you later find out your house is on the border of someone else’s property, the insurance company will try to resolve the situation financially with the neighbour, or even move your house if necessary. If you later learn someone else’s home is built on your property, title insurance will protect your right to your land.
☞ Forgery and Fraud: It safeguards you against fraud, including forged documents or impersonation attempts by fraudulent individuals. An example of this could be someone fraudulently transferring your property to another party without your consent or through deception. If such a fraudulent transfer is discovered, the title insurance policy can protect the rightful owner financially. If a property owner faces a legal challenge or dispute related to the title, the title insurance company will provide legal defense and cover the associated legal costs. This can be crucial in cases where fraudsters attempt to claim ownership of the property through fraudulent means.
☞ Boundary Disputes: If a boundary dispute arises after you’ve purchased the property, your title insurance policy can cover legal expenses and the costs of resolving the dispute. This coverage may include hiring surveyors, attorneys, or other experts to establish the property boundaries and resolve the dispute through negotiation, mediation, or, if necessary, litigation. If a third party, such as a neighbour claims your property’s boundaries, your title insurance policy can provide legal defense coverage.
In some cases, a boundary dispute can lead to financial losses, such as the loss of land or decreased property value. The insurance may offer monetary compensation to mitigate these losses, providing you with financial support if the dispute results in adverse effects on your property.
2. Homeowners Insurance: Protecting Your Home and Belongings
Picture your home being damaged by a natural disaster, a fire, or a burglary. Property insurance steps for covered events to help you recoup. This type of insurance is also known as homeowners insurance and protects you in a few different ways:
☞ Liability Coverage: Property insurance includes liability coverage, which protects you if someone is injured on your property or if you accidentally cause damage to someone else’s property. It can help cover medical expenses, legal fees, and settlement costs if you’re found responsible for the injury or damage.
☞ Coverage for Theft and Vandalism: Property insurance protects your belongings from theft and vandalism, providing compensation for stolen items or damage caused by burglaries or acts of vandalism.
☞ Coverage for Other Physical Damage: It covers damage to your home and its contents caused by covered disasters, such as fire, lightning, windstorms, hail, and more. If your home is damaged or destroyed due to a covered event, the insurance company will provide funds to repair or rebuild it.
☞ Protection from Natural Disasters: Depending on your location and policy, property insurance can offer protection against natural disasters such as earthquakes, floods, hurricanes, or tornadoes. However, coverage for these events may require additional endorsements or separate policies.
☞ Personal Property Protection: In addition to the structure of your home, property insurance also covers your personal belongings, such as furniture, electronics, clothing, and appliances. If these items are damaged, destroyed, or stolen, the insurance will help you replace or repair them.
☞ Additional Living Expenses: If your home becomes uninhabitable due to a covered peril, property insurance typically covers additional living expenses. This means it can help pay for temporary housing, meals, and other costs while your home is being repaired or rebuilt.
☞ Loss of Use: In the event your home is damaged or destroyed and you cannot live there during repairs, property insurance can provide compensation for the loss of use of your home.
☞ Debris Removal: Property insurance often covers removing debris from your property after a covered loss. This can be especially important after a significant fire or natural disaster.
3. Mortgage Insurance: An Emergency Life Preserver
Mortgage insurance can save you in several situations where you face financial difficulties or unexpected challenges trying to pay your monthly mortgage. Here are some scenarios where mortgage insurance can be a lifesaver:
☞ Job Loss: If you lose your job and struggle to make mortgage payments, mortgage insurance can step in to cover your payments temporarily, helping you avoid foreclosure.
☞ Disability or Illness: If you become disabled or suffer a severe illness that prevents you from working, mortgage insurance can provide financial relief by covering your mortgage payments during your recovery period.
☞ Death of a Co-Borrower: In the unfortunate event of the death of a co-borrower on a mortgage loan, mortgage insurance can help the surviving borrower by paying off or covering the mortgage balance.
☞ Divorce or Separation: Financial matters can become complex during divorce or separation. Mortgage insurance can provide stability by covering the mortgage while property issues are resolved.
☞ Temporary Financial Hardship: If you face a temporary financial setback, such as unexpected medical expenses or significant home repairs, and struggle to make mortgage payments, mortgage insurance can provide breathing room.
☞ Reduced Home Value: In situations where the value of your home decreases significantly, making it difficult to sell or refinance, mortgage insurance can offer protection to the lender if you default on the loan.
☞ Sudden Expenses: When faced with unexpected expenses like emergency repairs or legal fees, mortgage insurance can help ensure your mortgage payments are still made on time.
☞ Underwater Mortgage: If you owe more on your mortgage than your home is worth, mortgage insurance can be a safety net, allowing you to sell your home or refinance without a substantial loss. This can be critical if you signed a purchase agreement for a new build and the value of the home drops before moving in.
When you buy a home, it’s crucial to consider available insurance options to protect your investment. While we aren’t saying everyone should buy them, it is always worth looking into so that you are entering home ownership with your eyes wide open. With clarity, our wisdom flows.
Are you looking for further guidance? Reach out to us at email@example.com or 613-860-4663. We can look at your particular situation and help you clarify your options.