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 safeguards residential property owners and their mortgage lenders from any losses arising from the property’s ownership or title.
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1. CONTENTS AND LIABILITY INSURANCE/ FIRE INSURANCE
Non- Condo Purchase
It is the responsibility of the purchaser to get the house insured under terms stating the full guaranteed replacement value for the property and its contents before the closing of the deal. The insurance should be effective beginning from the day of the closing. The mortgage lender must be the one responsible for paying up the losses. The residential non-condo purchase deal cannot be closed by our office if we do not receive an insurance confirmation from the relevant insurance company (by fax). So, kindly confirm from your insurance agent to forward the binder letter of the insurance to our law office. This letter must contain all the information such as the arranged coverage, replacement costs and the complete address of the purchaser and the mortgage company.
Although, it is the responsibility of the condo management corporation to maintain an insurance policy for the entire condo project, you too should ensure you have the insurance for the contents of the condo. This should begin from the date of the closing. In case you are buying a new condo, it should be effective from the date of occupancy. Also, ensure that you are getting a condominium unit owner’s policy instead of the tenant’s policy.
Note: The typical insurance provided by the condo management covers all the items as initially provided by the condo corporation. So, any changes made thereafter might not be covered in the insurance policy. Also, make sure that your condo unit insurance is responsible for paying all the deductibles that the unit owner owns as per the condo company’s insurance policy.
If you are the Seller
Never cancel the insurance of your property until the transaction has taken place and the deal is closed. Your current policy must not expire on the expected date of closing. In such a case any delay in the closing will lead to a situation where you are the owner but you do not have the required fire insurance.
Note: If the property has been vacant for more than 30 days, your insurance agent must enclose a special insurance binder for successful closing.
2. Life Insurance to Cover Mortgage
It is vital that the primary breadwinner of the family is insured adequately. This is because the mortgage payments can be paid from the insurance in the unfortunate event of his/her death. Avoid getting insurance from the same mortgage lender from whom your house mortgage is running. This can lead to a situation where insurance is terminated when the buyer gets alternative insurance from some other company. So, getting such insurance from the same mortgage company is not a wise decision. Also, there are some other reasons including:
- Mortgage lenders usually offer life insurance at a higher cost compared to other insurance providers.
- In case you decide to switch the mortgage lender, you have to qualify for the insurance again through a complex and lengthy process.
- In case you have to get a new insurance from the same mortgage lender after the closing, you will most likely pay higher insurance costs due to increased age, inflation and considering that you have switched the mortgage lender by selling the property.
3. Title Insurance
Title insurance provides coverage against any issues that may arise due to a faulty condition on the ownership or title of the property. For more details please click the link below: