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Title insurance and home insurance–protect what matters most
February 27, 2023 | Posted by: Nathan Demers - Sunshine Coast Mortgage Broker
When something goes wrong with your home and you suffer a loss, you need to be able to rely on your insurance coverage. Knowing which of your insurance policies to turn to isn't always easy. Title insurance and home insurance both offer important protection, but many get them confused. So, what's the difference between home insurance and title insurance?
What is home insurance?
Home insurance is a type of property insurance that can provide coverage for things such as:
- losses from damage to your residence as well as other structures on your property;
- losses from property damage due to natural disasters like fire and windstorms (flood and earthquake coverage is often a separate purchase);
- stolen or damaged items in your home;
- potential liability or medical coverage if someone gets hurt on your property.
Many lenders require their borrowers to buy home insurance as a condition of securing their mortgage.
What makes title insurance different from home insurance?
A title insurance policy protects your title, which is your legal ownership of the property. It can provide coverage for a number of risks stemming from title defects, which prevent free and clear ownership. It can also cover losses due to encroachment and zoning issues, unpermitted work by a previous owner, and even title fraud.
When you buy home insurance, it's to prevent losses from events that might occur in the future. Most title insurance coverage focuses on existing, unknown issues or defects relating to the property and/or its title. It's a subtle difference, but an important one. Unfortunately, one of the most common reasons we have to deny claims for is because the homeownersthought they had a title insurance policy when all they had was home insurance.
There are lender as well as homeowner title insurance policies
Title insurance does more than just protect you once you take ownership of your property-it can help the closing process itself go more smoothly. That's one reason why many lenders require borrowers to purchase a lender title insurance policy or loan policy as part of getting their mortgage. To get protection for yourself, you also need a homeowner title insurance policy. Knowing the distinctions between the two policies can save you from losing out.
Title insurance is a one-time cost
One big difference between home insurance and title insurance is the way their premiums are set up. You pay for home insurance every month, and that payment potentially increases if you have to make a claim. With title insurance, you buy your policy with a one-time premium that's based on your property's location and size. The premium also varies by province, but $150 – $350 is a reasonable range to expect based on average 2021 home prices.
How long does title insurance last?
Your homeowner title insurance policy lasts as long as you have an interest in the property. The policy can also pass to your heirs or other beneficiaries if they inherit title from you.
Your lender title insurance policy lasts as long as your mortgage does. That means that if you refinance the mortgage with a new lender, you might need to get a new lender policy. Home insurance coverage isn't normally affected by refinancing, as long as you keep paying the monthly premium. Your lender may require you to show proof of home insurance for a refinance, just like with a new mortgage.
Which type of insurance is better?
Title insurance and home insurance cover different risks of home ownership. Having both policies can help you properly prepare for what the future may bring. The risks that title insurance covers are both expensive and hard to anticipate, but protecting yourself is simple.
I'm Nathan and I'm a BC Sunshine Coast Mortgage Broker helping people with New Home Purchases, Mortgage Renewals, Mortgage Refinancing as well as Mortgages for Rental Properties. If you need a mortgage in or around the Sunshine Coast of BC I can help.