Title insurance vs home insurance—which do your clients need?

If you’re a regular reader of this blog, you know that purchasing title insurance on every deal is the best way to keep your clients protected, as well as yourself. But for homebuyers navigating the closing process, it can feel like one additional detail among all the others.

Many buyers unfamiliar with title insurance get it confused with home insurance, which they know is required when they purchase a home. But home and title insurance protect homeowners from completely different types of risks.

Only title insurance protects against fraud

Title fraud—where a fraudster steals a property owner’s identity to impersonate them and take out a mortgage on their property, or even sell it to an innocent buyer—is on the rise in Canada. Without title insurance protection in place, property owners and mortgage lenders are vulnerable to significant financial losses.

Title insurance also means that property owners aren’t left to handle the fallout of title fraud on their own. Restoring title to a property is a long, complicated legal process that can cost tens of thousands of dollars. Making a title insurance claim for fraud triggers FCT’s duty to defend—we take on communication with all the parties involved, and cover the cost of any legal action that may become necessary.

What else does title insurance cover?

Title insurance deals with dozens of potential loss-causing issues. The coverage limit of a title insurance policy is high enough to protect against considerable loss or damage caused by a covered risk. Here are some of the most common risks homeowners encounter:

Title issues affect the clear ownership of a property. A title search through property records can often expose these issues, but they can just as easily emerge even years after your client closes on the property. When they try to sell, a title defect can make it impossible to legally transfer ownership of the property until it’s resolved.

• Encumbrance: When another party has a claim to all or part of your client’s property. In practice, this often means that there was an undischarged lien registered on the title. Mortgages, tax liens and builders’ liens are three of the most common types.

Off-title issues include potential legal problems with a property. They often involve how the property can be used, or who has access to it.

• Encroachment: When something encroaches onto your client’s property or something on your client’s property crosses onto a neighbouring property. If it’s because of an easement onto that property, this risk can also be considered a title issue, depending on the circumstances. Encroachment issues can take years to show up, sometimes if a neighbour has a new survey conducted.
• Zoning: When a homeowner is forced to correct or remove an existing violation due to a zoning infraction, it often involves a significant amount of work and expense. This issue is especially relevant for “main street” legal professionals dealing with a mix of commercial and residential properties.
• Previous owners’ unpermitted work: When a previous owner performed DIY improvements or renovations, and either didn’t have proper permits, or didn’t close the permits. This can block the sale of a property until it’s resolved. 

What does home insurance cover?

It varies, but in general, most home insurance policies share a few standard types of coverage:

• Dwelling coverage covers damage to the home caused by natural disasters such as fire, wind, and lightning. Flood and earthquake coverage is usually a separate add-on.
• Other structures coverage works the same way, but for any sheds, fences, detached garages, etc. on the property.
• Covered loss insures valuable items against loss, damage or theft, depending on the provider.
• Personal liability protection helps pay for legal costs if someone gets hurt on the property, including potential litigation.
• Medical payments coverage can pay if someone gets injured on the property but doesn’t want to sue. This coverage can pay for their medical expenses such as crutches, prescription medicines and so on.
• Loss-of-use coverage is if the home becomes uninhabitable due to an event covered by the policy. It covers additional living expenses like accommodation and meals while the property is being made livable again.

How much does title insurance cost?

Title insurance uses a one-time premium paid by the policy holder, not a monthly or annual payment. The premium uses a base price that scales slightly with the value of the property.

Title insurance coverage varies from province to province. Contact FCT to learn more about the coverage in your region.

Why do homebuyers need both home and title insurance?

The best way to protect clients from expensive and unexpected costs related to their property is to make sure they have title insurance, in addition to their home insurance. For a one-time premium, they get protection for as long as they have an interest in the property, and that protection can even transfer to their heir(s).

Your client’s home is one of the most important investments they will ever make. Don’t leave that investment at risk of title fraud, a previous owner’s renovations or even an encroachment: make sure every transaction closes with the help of title insurance from FCT.

Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.

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