Do I Need Homeowner's Insurance? Is Homeowner's Insurance Required? We Explain

Posted on May 31, 2019

Did you know that in 2016, 67.8% (or 9.5 million) of the 14.1 million Canadian households owned their home?

That's right!

And with a new mortgage program rolling out soon, it looks like homeownership rating will go up even more. With the new CMHC First-Time Home Buyer Incentive, more Canadians would be able to afford a home.

But even with this, buying a house is still the biggest purchase you'll ever make. For example, the average price of homes sold through MLS was $455,000 in January 2019.

With that kind of money on the line, it's no wonder the question, "do I need homeowners insurance?" is in the mind of many new buyers. After all, aside from the house, they also have to think of their other pricey personal belongings.

So, what’s the real deal behind homeowners insurance in Canada? Do you have to have home insurance for as long as you own a house?

All these questions, we’ll answer in this post, so make sure you read through to the end!

Is Homeowners Insurance Required by Law in Canada?

Unlike car insurance in Canada, homeowners insurance isn’t a legal requirement. But most, if not all lenders, consider this as a requirement to qualify borrowers for a mortgage. So, if you'll take out a mortgage, you likely would have to buy home insurance to get that home loan.

Note that homeowners insurance is different from mortgage protection insurance though. MPI is often a lender requirement for borrowers who make less than a 20% down payment on their homes. It's a form of life insurance policy that ensures your mortgage debt still gets repaid in case you die.  

Is Homeowners Insurance Required for Mortgage-Free Canadians?

If you’ve already paid off your house in full, your lender may no longer require you to keep your insurance. But if you'll take out another mortgage, say for a second home, you need to get a new policy for that property.

So, Why is Home Insurance Mandatory for Lenders?

Because homeowners insurance protects both the lender and the mortgage borrower.

How so?

First, consider that on average, each Canadian borrower still owes $198,781 on their homes. Their home is the "security" or "collateral" for that money they owe.

So, if a borrower defaults on the mortgage, the lender can simply foreclose the property. They can then sell it again to recoup the money they lent to the previous borrower.

Now, let's say that an uninsured house gets damaged or destroyed by an accidental fire. What happens then?

Because it's uninsured, the mortgage owner has to repair or rebuild it using their own money. As an example, let's use the average fire damage repair cost range in the U.S., which is between US$ 3,149 and $26,573. That's about C$ 4,200 to C$ 35,600.

No one wants a disaster to hit their home, but these events (and accidents) can still happen. If they do, and the home isn't insured, homeowners are at risk of huge repair or rebuild expenses. And if they can't afford to pay these costs out-of-pocket, they may even become homeless.

So, as you can see, both parties end up with serious losses. Homeowners can lose their home and personal property if disaster strikes. Lenders also lose their money since the home -- the collateral for the loan -- is no longer habitable.

Why Do I Need Homeowners Insurance: A More In-Depth Perspective

Let's say you're already part of the roughly 30% of mortgage-free Canadians. This has you thinking, "do I need homeowners insurance even if I already own my home?”

If you want to ensure your home and its contents remain protected from loss, damage, or theft, then yes, you do need it. This sounds a bit vague, so let’s delve deeper into what your home insurance policy can do for you.

Coverage for Damages and Losses to Your Home

A standard homeowners insurance policy covers everything listed as "insured peril".

Such perils include fire and smoke, lightning, explosion, and electrical current. There's also coverage for falling objects, hail and wind, as well as air and land vehicle impact. If your roof collapses because of ice, your policy may also cover all or some of its repair or replacement costs.

Standard policies also provide coverage for some types of accidental water damage. For instance, a plumbing pipe suddenly bursts for no obvious reason. In this case, your policy may cover the costs of repairing the water damage to your home.

Standard homeowners insurance also provides coverage for theft, vandalism, and riot. This includes coverage for damages left by a burglar, say broken glass windows. If the criminal destroys your front door, your policy will also kick in to cover these damages.

Personal Property Coverage

Speaking of crimes, did you know that 1.19 million property crimes occurred in the country in 2017?

This further highlights the importance of getting homeowners insurance. Because if you don't, and a thief targets your home, you'll replace all stolen items using your own money.

Whereas having homeowners insurance protects you from these expenses. How much coverage you'll get still depends on the specific type of coverage you have though. But even standard policies offer a good amount of protection against such crimes.

Liability Coverage

Home insurance also protects you from legal liabilities to others. For instance, a visitor slips and gets injured in your home. The accident was quite serious that it resulted in your guest having to go to the hospital.

If the injured person decides to sue you, your policy will protect you from that lawsuit. It will also cover part of or all the medical costs resulting from the accident.

Liability insurance also covers accidental damages you may cause to another person's property.

Let's say you have a guest's car parked in your garage and your roof caves in on it due to the heavy weight of snow. Your homeowners' insurance policy may cover the repair costs to your visitor's vehicle.

Another example is if a fire that started in your home makes it to your neighbor’s home. With about 24,000 housefires occurring in Canada each year, this is no doubt a possibility. But so long as you have homeowner’s insurance, it'll protect you from such liabilities.

Homeowners insurance also covers damages or injuries to other people caused by a pet.

Let's say your household belongs in the 35% of Canadian families with a dog. Your canine pal, as friendly as it is, could bite someone who enters your property if it feels threatened. The injured person can then sue you for the incident.

The liability coverage of your homeowners' insurance will protect you from the lawsuit. It will also pay for some of or all the medical costs associated with the dog bite.

Note that pet insurance is different from the above pet-related liability insurance though. Pet insurance is more for the health and well-being of your pet, such as veterinary care. Either way, you'd want to get both for your beloved furry family member.

The Bottom Line: You Need Homeowners Insurance

With your home being at risk of so many dangers, lack of homeowners insurance can be a financial disaster. Without it, you'll pay for all the damages and losses you incur out-of-pocket. It can render you homeless, both on a literal and figurative sense.

Whereas if a fire burns down your insured home, your policy will cover its repair or rebuild costs. It may even cover additional living expenses after the fire. These additional living expenses may be in the form of renting another home or living in a hotel.

So, as you can see, you definitely need to insure your home, even if you’ve finished paying off your mortgage. The risks are too high of going uninsured. You've spent so much already on your home that it's only logical to protect it and everything it contains.

Keep the Roof Above Your Head with Homeowners Insurance

There you have it, the simple answer to your question, "do I need homeowners insurance?". You need it, whether you're mortgage-free, still paying off your mortgage, or just about to get one. It may not be a legal must-have, but as a smart homeowner, it definitely is a crucial investment.

Besides, homeowners insurance doesn't have to cost an arm and leg. So long as you do your homework and compare all your options, you'll find a policy that your budget can afford.

And we can help you secure that inexpensive homeowner's insurance policy. Ask us for a quote now and we'll help you find the most affordable homeowners insurance in Canada!

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