Contents and Liability Insurance
a) Fire/Contents Insurance in Non-Condo Purchases
House insurance has to be arranged by the purchaser with the mortgage lender named as a loss payee in the policy. The house insurance policy should be of the full guaranteed replacement value of the property just prior to the closing. The policy should be made effective on the closing day.
In all such cases, insurance company agent usually sends an insurance binder letter to the law firm dealing on your behalf confirming that the coverage is arranged for guaranteed replacement cost. It also contains the mortgage company’s name and address and is sent to your real estate lawyer before completion of the non-condominium house purchase.
b) Fire Insurance for Condominium Purchases
Usually, insurance for the complete condominium is taken by the condo corporation. This includes all the original structure provided by the builder and does not include any improvements or upgrades done on any later dates.
Certain exceptions are present for vacant land condominiums where insurance will be needed. In these circumstances, your real estate lawyer can review and advise on the need to purchase the insurance.
It is advisable to take insurance for the contents and liability of your individual condo unit at the time of purchasing the condominium.
For resale property purchases, such policy needs to be effective as of the closing date. In case of new condo purchases directly from the builder, the occupancy date will be the effective date of the policy.
It is advisable to make sure:
- You should take a condominium unit owner’s policy (not a tenant’s policy)
- Condo unit insurance should include payment for deductibles owed by the unit owner as per the insurance policy of the condo corporation
In cases where you are selling
Make sure that your property insurance is legally valid till the complete transaction has taken place and is closed. Cancel the policy only after the transaction is closed.
Though you can advise the insurance company of the upcoming sale of your property but cancel the policy only upon closing of the deal. Never inform your insurance broker to cancel the insurance policy prior to closing or on the closing date. You will certainly never want to be in a situation where you are the legal owner of a property which has cancelled fire insurance.
For any property that will be vacant for a period exceeding 30 days, it is essential to get a special insurance binder from your insurance agent.
Life Insurance Covering the Mortgage
Mortgage on a property may to be covered with a life insurance policy. It is absolutely essential to secure the life/lives of the primary breadwinners of the family to ensure that the outstanding mortgage can be paid off with the life insurance proceeds in case of their untimely death.
Getting such insurance from the mortgage lender is a temporary option as this insurance is liable for termination by the buyer once they choose an alternative insurance provider.
Life insurance from the mortgage lender is not the best option due to many reasons including:
- Life insurance taken from the mortgage lender may be costlier than a direct insurance provider
- A purchaser may need to requalify for the insurance when they switch lender or renew a mortgage if the insurance was taken from a mortgage lender instead of a direct insurance provider. The requalification process may include a questionnaire where medical condition needs to be mentioned (any changes here may prove to be complicated) and with change in health conditions the premium may increase on renewal or coverage may eb denied.
- In cases where a purchaser switches to a different mortgage lender from the current one, the new premiums would be based on the higher age of the purchaser. With higher age of the purchaser, the premiums would definitely be costlierIf the policy was taken from a direct insurance provider and is continued, costlier premiums will not be present for the purchaser.
Title Insurance
Title insurance safeguards residential property owners and their mortgage lenders from any losses arising from the property’s ownership or title.
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