Title insurance vs home insurance–what do your clients need?
Feb 16th, 2024 | By FCT
If you’re a regular reader of this blog, you know that using 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 a required purchase. But home and title insurance protect homeowners from completely different types of risks:
What does title insurance cover?
Title insurance covers dozens of individual risks, but they break down into three categories: title, off-title and transactional. Here are some of the most common risks homeowners encounter:
Title issues affect the clear ownership of a property. When the owner tries to sell, a defective title 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 on your client’s property crosses into someone else’s. 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 has to make ordered changes 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.
Transactional issues cover a variety of problems from issues with property surveys, to a lack of corporate authority. But the most significant transactional risk is title fraud.
- Title fraud: When someone impersonates a property owner and takes out a mortgage on it, or sells it to an innocent buyer. Either way, the fraudster walks away with the proceeds, leaving the other parties to deal with the fallout.
What does home insurance cover?
It varies, but in general, most home insurance policies share a few standard types of protections:
- Dwelling coverage protects against losses from 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.
- Personal property coverage 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 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. Premiums vary from province to province, but are typically in the mid-to-low hundreds.
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: 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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