Property insurance is a protection for homeowners or renters that protects your home and property from acts including theft, fire, vandalism, damage, and “acts of God.”
Acts of God refer to events that are out of human control, such as tornados, floods, earthquakes, or ice damage.
Below is everything you need to know about property insurance in Canada and why getting coverage is essential.
Property insurance guide
What you need to know:
- Property insurance protects you from property damage or liability.
- Property/homeowner insurance is not mandatory in Canada, although a mortgage broker may require it.
- The benefit of mortgage insurance is that your family can remain in your home after your demise/your coverage pays off your debts.
- Your property insurance coverage may include “acts of God” as an addon or you may purchase separate coverage.
- Your homeowner coverage does not cover rental property, a different type of insurance is required if you are a landlord (not living on the property).
- You need “act of god” insurance if your home or property is in an area prone to natural disasters.
- Landlord insurance coverage protects property owners from property damage and liability.
- In the US and Canada, it is mandatory to have vehicle insurance or proof of financial responsibility if you are driving your vehicle.
In short, if you own property that is valuable to you or is a lifeline, it is in your best interest to get it insured.
What is property insurance, and do you need it?
As you amass property, there is always the risk that you may lose it all because of a person, event, or an act of God. There is also the risk of liability, meaning someone may get injured while on your property leading to a lawsuit that may cost you thousands of dollars.
Paying for said damages out of pocket can and will affect your bottom line negatively.
“Property insurance” is a broad term that refers to a type of insurance coverage that protects property owners. If you run a commercial property or if your property is at risk of fire damage, theft, personal liability, or weather damage, you need property insurance.
Types of property insurance you need in Canada
Depending on the nature of your business or property, you may need property insurance and liability insurance. We will mostly be covering home insurance, but under the umbrella of property insurance there is also:
- Personal Liability Insurance
- Home Insurance
- Car Insurance
- Tenant Insurance
- Comprehensive Coverage
- Business Insurance
Different Types of Homeowner’s Coverage in Canada
- Actual Cash Value – This covers the cost of the house and the value of the contents inside at the time of the loss. This means that you would receive the current value (less depreciation) of any belongings inside.
- Replacement Cost – This covers the cost to replace everything within your home at current values. An interesting side note of this is that if something is no longer made you would be able to request a more modern replacement that matches the features available. This means for example if you have a projector lost in a fire with a specific port you may request insurance to match that feature (even if it is much more expensive).
- Guaranteed Replacement Cost – This coverage is the most expensive and comprehensive type of policy and will cover everything it takes to repair or rebuild your home – regardless of cost.
Do you need liability coverage and is coverage mandatory in the US and Canada?
Property insurance is not mandatory, but having coverage is advisable if you run a legal or health business, or if you serve alcohol or marijuana in Canada or the US, the law may require you to have insurance. We recommend consulting with your insurer or checking local laws.
Liability coverage, as mentioned protects you and your business from lawsuits.
In Canada and some states in the US, auto insurance is mandatory. Consequently, driving an uninsured vehicle in some states and Canada may result in fines or jail time depending on provincial or state insurance law.
What damages does property insurance cover?
In theory, property insurance will cover all damages except for any damage that is the result of poor maintenance and acts of God, including earthquakes or flood damage. However, what is covered depends on the policy agreement and the type of coverage you buy.
Do you need property insurance for acts of God?
It depends. If your home or property is in an area that is prone to flooding, earthquakes, forest fires, and other natural disasters, it is in your best interest to purchase additional coverage.
An “act of God” as mentioned, is an insurance term that refers to all acts of nature that you cannot predict, prevent or blame anyone for it.
Should your insurance coverage contain an act of God phrase?
An act of God phrase is protection for insurance companies to avoid paying damages that result from acts of nature. If your property insurance coverage contains an act of God phrase. Your insurer may deny you compensation if you suffer loss as a result of flooding, earthquakes, tornadoes, and other natural disasters.
We recommend reading your policy or consulting with your insurer, some policies may be more expensive in flood/fire/weather prone areas. In extremely high-risk areas your insurer may not cover that type of damage – for example in a flood-prone area.
Can you claim for an act of God if you have property insurance?
It depends on your insurance coverage. Because of that, when you purchase insurance, do not assume anything. Instead, carefully read the fine print. If a phrase or wording is unclear, ask for clarification.
The idea is to look for “an act of god clause.” Does the insurer offer acts of God coverage policy as a separate policy or as an add-on?
How much coverage do you need? Is Act of God coverage worth it?
You need Act of God coverage if your property sits in an area that is prone to natural disasters. Some indicators that an area is prone to disaster include:
- Low-lying areas, or areas with poor drainage -are prone to flooding.
- Does the area experience heavy snowfall?
- Wooded areas are prone to forest fires.
We recommend consulting with other property owners in your area to find out if Act of God insurance is necessary.
Homeowner property insurance, is it mandatory, and do I need it?
Legally, homeowner insurance is not mandatory. However your mortgage lender will likely require you to have home insurance and owning this type of coverage is beneficial in that if you suffer property damage, your insurer compensates.
What happens if you die before paying off your mortgage?
If you have the correct coverage your insurance company will pay off your debt if you have mortgage insurance.
Do you need property insurance if you are paying a mortgage?
When you mortgage a home, the bank’s money is on the line. In this scenario, the importance of having property insurance is that in the event of a catastrophe, your dependents do not have to pay the lender out of pocket. It is likely that a lender will require you to maintain coverage throughout the duration of your mortgage.
There are at least four types of mortgage insurance:
- Lender-paid mortgage insurance. Your lender may include LPMI in your mortgage agreement. If that is a condition, you will have to pay premiums throughout the life of the loan.
- Single-premium mortgage requires the homeowner to pay insurance as a single lumpsum payment.
- Split premium mortgage insurance. You must pay an upfront premium and lower premiums throughout the life of the loan.
- Borrower-paid mortgage insurance. If your down payment is less than 20%, you may have to pay for mortgage insurance monthly.
What are the benefits of paying mortgage insurance?
Death, illness, unemployment, and other negative factors may occur at any time. The benefit of having mortgage insurance is that in the event of unforeseen circumstances, your insurance coverage will pay your mortgage.
The main benefit of mortgage insurance is that your family can continue staying in your home after your passing.
What to remember:
- Mortgage protection insurance is a protection that pays off your mortgage should anything happen to you.
- You do not necessarily need mortgage insurance.
- Your mortgage insurance coverage is based on factors, including your age, health, and likelihood that you will pass away while the coverage is still in effect.
- Your lender will receive a payout in the event of your death (beneficial for dependents or persons living in the home).
- The premiums remain the same.
- If you do not make changes, the value of death benefits remains the same.
- Your mortgage insurance policy terminates when you pay off your mortgage.
Do landlords need property insurance?
Under Canadian provincial laws, property owners have a legal obligation to ensure that their property is reasonably safe for tenants and visitors.
As a property owner, your insurance coverage protects you from liability, property damage, and lost income.
What is landlord insurance?
It is vital to realize that your home insurance coverage only protects the area you occupy. Consequently, if your rental property suffers damage or if someone gets injured on a rented property, you may have to pay for the damages out of pocket if you do not have additional coverage.
Why do you need landlord property insurance?
- Landlord insurance protects you from theft and property damage.
- In most states, a renter is not liable for large appliance damage or malfunction.
- If your actions or that of an employee cause property damage or injuries, you do not have to pay for damages out of pocket.
Note: Under Canadian and American liability laws, you are not liable to pay damages if a tenant or visitor gets injured because of their actions. You are only liable if the accident was a result of your/employee’s actions, inactions, or negligence.
In short, landlords need property insurance because:
- You need liability protection. If you do not insure rental property, you may have to pay medical and legal fees out of pocket if a tenant or visitor gets injured while on your property.
- Lost income. What if the property becomes inhabitable because of an infestation or damage? Having coverage ensures that you do not lose rental income.
- Your property is at risk of human error and acts of God.
Rented property; Additional coverage you should consider getting
If you are a property owner, you should consider adding the following to your policy.
- Flood insurance/ Act of God coverage. If your property is in a disaster-prone area, you should consider purchasing additional coverage (flood, fire, hurricane, etc).
What is rental income insurance?
Your rental property may become inhabitable for several reasons, it could be safety, or the renter may decide to move out. Both scenarios mean lost income which is not good if you are paying a mortgage. Rental income protection is an add-on or additional coverage that you may purchase to get compensation when your rental property becomes inhabitable.
That means you will have income while you make repairs to the property.
