Your home is likely your biggest financial investment, so protecting it and the contents within should be a priority. Whether you own or rent a house, apartment or condo, home insurance will ensure your biggest assets are covered in case of an incident. Having that protection for your valuables is logical, but is home insurance mandatory? Let’s examine which incidences make obtaining homeowners insurance necessary, and which do not. Additionally, we include a basic rundown of what home insurance is and what types of coverages you may need.
What is home insurance?
Home insurance is what protects you, your family and your possessions from loss and liability. It also protects your mortgage lender, which is why it’s a requirement for securing a mortgage. Reputable mortgage lenders will not consider an offer to first-time home buyers without proof of homeowners insurance. The home insurance that you buy determines what coverage you will receive in the event of a claim. The insurance policies usually start off with basic coverage:
- Your house
- Other buildings on your property
- Personal property
- Liability
Below are the main components of a home insurance policy:
- Named Perils: Most home insurance policies cover named perils, such as fire, wind and theft.
- Contents insurance: This is the portion of your policy that protects your belongings.
- Liability: This part of your policy protects you in the event that someone is injured or killed on your property.
- Loss of use: This portion of your policy protects you in the event that damage from one of your named perils prevents you from being able to live in your home while it is being repaired.
Is homeowners insurance necessary?
The answer to the question, ‘is home insurance mandatory?’, is somewhat complicated. In short, coverage depends on your individual circumstances. Unlike auto insurance, home insurance has not been made mandatory by the government. In Ontario, if you own your home and have no mortgage, you don’t legally need to have homeowners insurance.
Why do you need proof of house insurance to get a mortgage?
However, if you’re asking “Is home insurance a requirement if I need a mortgage?”, then you’ll get a different answer. If you own the property and have a mortgage on it, your bank or lender will require that you hold an active home insurance policy and name them on that policy. When someone lends you money to purchase a property, they count on you being able to pay them back. By loaning you the money to purchase a home, (i.e. a mortgage,) they now have an investment in your property. Because of this, your mortgage lender wants to make sure your property has full coverage in the event of damage or loss. Your lender will require insurance because of the risks associated with loaning such large amounts of money to you. Simply put, they are protecting their investment.
Most banks or mortgage holders also want to make sure that you’re financially able to continue paying off your mortgage. This is regardless of whether your property is destroyed due to fire or inclement weather. Your mortgage doesn’t disappear with the loss of your property, and you’ll still be required to pay your mortgage off. Therefore, your lender is protecting their investment by requiring insurance on a mortgage, and they’re also protecting you from the financial hardship that will result from defaulting on your mortgage if your home is destroyed.
FYI: Condo corporations and lenders may require condo unit owners, to show proof of insurance for their unit before they can move in.
What is the minimum amount of home insurance coverage for a mortgage?
According to Economical.com, your mortgage lender will require that your home at least be protected against the following perils, also known as Named Perils coverage. These are typically included in most basic home insurance policies:
- Theft and vandalism
- Falling objects
- Fire and lightning
- Hail and wind damage
- Frozen pipes
- Riots or civil unrest
- Smoke
- Explosion
- Vehicles
FYI: Your requirements may not stop there. Depending on where you live, your lender may also require coverage for other perils, like windstorms, sewer backup, overland water, or earthquakes. Be sure to speak with one of our isure representatives about your coverage needs.
Renting and home insurance
If you do not own your property, but are renting it, your landlord may require that you have renter’s or tenant insurance. Landlords may require tenants to show proof of tenant insurance before allowing tenants to move in. A common misconception about insurance and rental properties is that your landlord’s insurance will cover a loss suffered by your unit. This is false. The truth is, while your landlord’s insurance policy does cover the building in which you live, it doesn’t extend to possessions within your apartment or home. Don’t leave your personal belongings unprotected! Tenant insurance policies cover the cost of repairing or replacing items lost or damaged as a result of fire, vandalism, theft, or some types of water damage.
Answering the question “is home insurance mandatory” may not be a simple one, however, having some coverage to protect your investment is most definitely recommended. For answers to more home insurance questions, contact one of our isure representatives today. We will be more than happy to review your policy and discuss any changes that will ensure the best coverage possible for your investment.
