Skip to main content Skip to chat

Three different types of insurance for homeowners

May 11, 2018

Written by Sean Cooper

Key takeaways

  • You can get basic, broad and comprehensive home insurance coverage.
  • If you have a high-ratio mortgage, you'll need to buy mortgage default insurance. 
  • Mortgage life insurance pays off your mortgage (up to a limit) in the event that you pass away.

Three different types of insurance for homeowners

Your home is likely your most valuable asset, so it's only natural that you'll want to protect it. There are three types of insurance every homeowner should be aware of: home insurance, mortgage insurance and mortgage life insurance. It's important to understand each type to make sure your home and loved ones are properly protected if disaster ever strikes.

Home insurance

If you're looking to protect your home and its contents, look no further than home insurance. Most lenders require that you have home insurance in place by your closing date, otherwise your mortgage won't be approved. There are three main types of home insurance: basic, broad and comprehensive. You can also buy extra coverage (known as “riders") for sewer backup and expensive items like jewelry.

Basic is your “no frills" insurance policy. It's the least costly, but it also offers the bare minimum in protection. You're only covered for “named perils" like fire, theft and wind. Broad is a mid-range policy that costs more than basic, but offers a higher level of protection. Broad policies protect your home and its contents from “named perils" similar to basic, plus some extra hazards named in your policy. The third type, comprehensive, gives homeowners the highest level of protection. Most comprehensive policies protect your home from all disasters, except any exclusions in your policy, such as damage caused by flooding and wear and tear.

Mortgage insurance

If your down payment is between 5 percent on the purchase price up to $500,000 and 10 percent for the remaining portion of the purchase price up to $999,999, and 19.99 percent, your mortgage is high-ratio and you'll need to buy mortgage insurance. Unlike home insurance, mortgage insurance doesn't protect you – it protects your lender in the event you fail to repay your mortgage. How much you pay in mortgage insurance depends on the size of your down payment. The closer your down payment is to 20 percent, the lower the percentage of mortgage insurance premiums you'll shell out. There are three main providers of mortgage insurance in Canada: Canada Mortgage and Housing CorporationTM (CMHC), Genworth Canada and Canada GuarantyTM.

Unlike other closing costs, mortgage insurance premiums don't have to be paid before your closing date. Most homeowners choose to add it to their total mortgage amount and amortize it over the life of their mortgage. Although this helps when you don't have a 20 percent down payment, it comes at a cost – this can add thousands in interest over the life of your mortgage.

Mortgage life insurance

For most families, a mortgage is the biggest debt of their lifetime. If you were to suddenly pass away, it could leave your family in a financial bind. Mortgage life insurance helps homeowners get a good night's sleep and not worry about who will pay the mortgage. Your mortgage would be fully paid (usually up to a limit) in the event that you pass away. Your premiums stay the same over the life of your mortgage, making it a lot more affordable than most permanent life insurance policies.

Mortgage life insurance isn't without its downsides, since it's a lot less flexible than term insurance. Your beneficiary isn't your spouse or children, it's your bank – the payout can only be used to pay off your mortgage. Before deciding on mortgage life insurance versus term or permanent insurance, weigh your options carefully. Make sure you sign up for some type of insurance. Some homeowners skip mortgage life insurance and never get around to signing up for term or permanent, leaving them without any insurance coverage.

Canada Guaranty is a trademark of Canada Guaranty Mortgage Insurance Company

Canada Mortgage and Housing Corporation is a trademark of Canada Mortgage and Housing Corporation

This article or video (the “Content”), as applicable, is provided by independent third parties that are not affiliated with Tangerine Bank or any of its affiliates. Tangerine Bank and its affiliates neither endorse or approve nor are liable for any third party Content, or investment or financial loss arising from any use of such Content.

The Content is provided for general information and educational purposes only, is not intended to be relied upon as, or provide, personal financial, tax or investment advice and does not take into account the specific objectives, personal, financial, legal or tax situation, or particular circumstances and needs of any specific person. No information contained in the Content constitutes, or should be construed as, a recommendation, offer or solicitation by Tangerine to buy, hold or sell any security, financial product or instrument discussed therein or to follow any particular investment or financial strategy. In making your financial and investment decisions, you will consult with and rely upon your own advisors and will seek your own professional advice regarding the appropriateness of implementing strategies before taking action. Any information, data, opinions, views, advice, recommendations or other content provided by any third party are solely those of such third party and not of Tangerine Bank or its affiliates, and Tangerine Bank and its affiliates accept no liability in respect thereof and do not guarantee the accuracy or reliability of any information in the third party Content. Any information contained in the Content, including information related to interest rates, market conditions, tax rules, and other investment factors, is subject to change without notice, and neither Tangerine Bank nor its affiliates are responsible for updating this information.

Tangerine Investment Funds are managed by 1832 Asset Management L.P. and are only available by opening an Investment Fund Account with Tangerine Investment Funds Limited. These firms are wholly owned subsidiaries of The Bank of Nova Scotia. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.