Understanding the 5 Types of Insurance Involved in Home-ownership
Let’s be honest—insurance isn’t fun to pay for. Whether it’s home, auto, or life insurance, it can feel like every time you turn around, another premium is due. I feel it too. It’s frustrating. But here’s the truth: insurance exists to protect you during one of the worst moments of your life.
This is not the time to under-spend, or to under-understand. You need to know what you’re buying and why. Insurance is not designed to inconvenience you, it’s there to back you up when things fall apart. I probably carry more insurance than most, but there’s a reason for that. I’ve had a fire. I’ve had a flood. I’ve been in car accidents. I’ve dealt with theft. And every time, insurance was there to help me recover. That’s why I always aim to buy the best insurance I can afford, not the most expensive, the comprehensive. Because when the worst happens, you don’t need the cheapest policy, you need a company that will actually show up for you.
Here’s a breakdown of the five main types of insurance you’ll encounter when buying a home, and why each one matters.
1. Default Mortgage Insurance
Default insurance is required when your down payment is less than 20%. It protects the lender, not the borrower, in case of default. However, it also enables you to buy a home with as little as 5% down and often grants access to better interest rates because the lender’s risk is reduced.
There are three approved default insurers in Canada:
While these insurers are not household names to most buyers, they work behind the scenes to support homeownership. Importantly, if you face hardship—such as job loss or illness—these insurers may offer support to help you stay in your home. Some have been known to offer repayment plans or even modify loans. It’s in everyone’s best interest to avoid foreclosure when possible.
2. Mortgage Life, Critical Illness, and Disability Insurance
In many provinces, including Ontario, lenders and brokers are required to offer you mortgage protection insurance, which can include:
- Life insurance – pays off the mortgage if you pass away
- Critical illness – provides a lump sum if you’re diagnosed with a covered serious illness
- Disability insurance – covers mortgage payments if you’re unable to work due to injury or illness
Whether or not you choose this protection is up to you. Some clients believe their workplace coverage is enough, but it’s important to remember that group insurance often ends when you leave your job or retire. Personal policies are portable and tend to offer more consistent protection over time. The key is to choose a plan that stays affordable and responsive as you age.
3. Title Insurance
Title insurance protects against problems related to the legal ownership of your home. It’s a one-time purchase (typically $300–$500) and covers unknown title defects, unpaid taxes from a previous owner, encroachments (like a neighbour’s fence crossing your property line), or fraud.
Some examples of how title insurance can help:
- You discover after purchase that a deck was built without permits and violates zoning
- You receive a tax bill for back taxes the previous owner didn’t pay
- A fraudster puts a mortgage on your fully paid-off home without your knowledge
In place of a costly new land survey, title insurance can also satisfy lender requirements. It’s a practical and protective option for most buyers.
4. Home Insurance (Fire and Replacement Coverage)
If you have a mortgage, fire insurance—or a comprehensive home replacement policy—is required. Lenders will not advance funds without proof that the home is protected.
Home insurance should cover more than just basic fire loss. Choose a provider that offers full replacement value, supports you during claims, and has a good track record of service. Floods, electrical fires, and storm damage can result in serious financial hardship. This is not an area to under-insure.
Remember: the worst time to discover you’re underinsured is during a crisis.
5. Optional Add-Ons and Extra Coverage
While the four categories above are the most common, additional insurance products may be offered depending on your situation. These could include:
- Condo insurance (for contents and personal liability)
- Tenant insurance (if you are renting part of your home)
- Earthquake or overland flood coverage (regional risks)
Talk to a trusted insurance advisor before you waive coverage or accept a default option. Insurance is there for when things go wrong; and the time to secure good insurance is before anything does go wrong.
If you need a referral for a trusted insurance professional, please let me know, I can help.
