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| What about insurance ? |
| When you purchase a home, consider how to protect your investment. |
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| Explaining Title Insurance |
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| Title insurance is gaining in popularity in Canada. What exactly is it? Whether title insurance is right for you is something you should discuss with your lawyer, as it depends on the circumstances of your transaction. This article will provide you with some background information about title insurance to help you make an informed decision. |
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| Title to the property |
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| Title is a legal term for property ownership. Buyers want "good and marketable" title to a property ... good title means title appropriate for the buyer's purposes; marketable title means title the buyer can convey to someone else. Prior to closing, public records are "searched" to determine the previous ownership of the property, as well as prior dealings related to it. This might reveal, for example, existing mortgages, liens for outstanding taxes, utility charges etc., registered against the property. At closing the buyer expects property that is free of such claims, so normally they must be cleared up before closing. For example, the seller's mortgage will be discharged and outstanding monetary expenses (such as taxes and utility charges) will be paid for (or adjusted for) at closing. |
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| Sometimes problems (or defects) regarding title are not discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer subsequently sells and, depending on the nature of the problem, can also cost money to remedy. For example the survey might have failed to show that a dock and a boathouse built on a river adjoining a vacation property was built without permission. The buyer of the property could be out-of-pocket if he is later forced to remove the dock and boathouse. The property might have been conveyed to a previous owner fraudulently, in which case there is the risk that the real owner may come forward at some point and demand their rights with respect to the property. |
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| Who is protected with Title Insuance ? |
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| Title insurance policies can be issued in favour of a purchaser (on new/resale homes, condos, and vacation properties), a lender, or both the purchaser and lender. Lenders will sometimes require title insurance as a condition of making the loan. Title insurance protects purchasers and/or lenders against loss or damage sustained if a claim that is covered under the terms of the policy is made. Types of risks that are usually covered under a title insurance policy include: survey irregularities; forced removal of existing structures; claims due to fraud, forgery or duress; unregistered easements and rights of ways; lack of pedestrian or vehicular access to the property; work orders; zoning and set back non-compliance or deficiencies; etc. For a risk to be covered, generally it has to have existed as of the date of the policy. As with any type of insurance policy, certain types of risks might not be covered, for example, native land claims and environmental hazards are normally excluded. |
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| Be sure to discuss with your lawyer what risks are covered and what are excluded. The insured purchaser is indemnified for actual loss of damage sustained up to the amount of the policy, which is based on the purchase price. As well, some policies have inflation coverage, which means that if the fair market value of a property increases, the policy amount also increases (up to a set maximum). |
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| How long is the insurance coverage ? |
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| In the case of title insurance covering the purchaser, title insurance remains in effect as long as the insured purchaser has title to the land. Some policies also protect those who received the title as a result of the purchaser's death, or certain family members ( e.g., a spouse or children) to whom the property may have been transferred for a nominal consideration. In the case of title insurance covering a lender, the policy remains in effect as long as the mortgage remains on title. A lender covered under a title insurance policy is insured in the event the lender realizes on its security and suffers actual loss or damage with respect to a risk covered under the policy. Lenders are usually covered up to the principal amount of the mortgage. |
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| The premium for title insurance is paid once (at the time of purchase). Generally, in Canada the purchaser of the property pays for the title insurance, though there can be situations where the seller pays for it. Some policies automatically cover both the purchaser and the lender; others will cover both for a smaller additional fee. |
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| Protection and peace of mind |
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| Title insurance can help ensure that a closing is not delayed due to defects in title. If an issue to title arises with respect to a risk covered under the policy, the title insurance covers the legal fees and expenses associated with defending the insured's title and pays in the event of loss. |
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| Homeowner's Insurance |
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| Most mortgage lenders insist on fire insurance coverage at least equal to the loan amount or the building value, whichever is less. You should also consider a homeowner's policy which combines fire insurance on the building and its contents with personal liability coverage. Consult your general insurance agent or broker for professional advice on home insurance. |
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| Mortgage Life Insurance |
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| When lenders refer to mortgage insurance, they're referring to coverage that's provided by CHMC or GE Capital for a high ratio mortgage. Mortgage life insurance (MLI) is inexpensive coverage on your life which protects your family or beneficiaries by paying off your outstanding mortgage in the event of your death. For just pennies a day, you will have peace of mind knowing your beneficiaries will be mortgage free. |
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| MLI premiums are based on two factors: your age and the mortgage amount. Your premium is added to your mortgage payment so there's no extra paperwork, and it remains the same until your mortgage is paid off. Joint coverage for spouses is also available. |
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| Disability Insurance |
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| Disability Insurance is important if your mortgage payments depend entirely or in part on your income. Disability insurance provides a replacement income if an accident or illness prevents you from working. |
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| Job Loss Mortgage Insurance |
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| Recently insurance companies have started to offer Job Loss Mortgage Insurance. This insurance covers the mortgage payments in the event that you involuntarily lose your job. |
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