Glossary
Property Insurance
Insurance that covers the home itself against perils such as fire, wind, water damage, and theft, required by every Canadian mortgage lender..
Property insurance is coverage that protects the home itself — the building and, depending on the policy, attached structures and contents — against perils such as fire, wind, water damage, and theft. Every mortgage lender in Canada requires it before advancing funds on a purchase or a refinance.
What a standard policy covers
Most homeowner policies combine coverage for the dwelling with liability protection. Lenders focus on the dwelling portion because the home is the security for the mortgage. If the building is destroyed and no policy is in place, the lender's collateral is gone while the debt remains.
- Dwelling coverage — the replacement cost of the building.
- Contents coverage — personal belongings inside the home.
- Liability coverage — third-party claims, such as a visitor injured on the property.
- Additional living expenses — temporary housing if the home becomes uninhabitable.
Why mortgage lenders require it
A mortgage is secured by the property, so the lender holds a direct financial interest in it. Lenders typically require proof of insurance before the funds are advanced, and many ask to be named on the policy. If coverage lapses, a lender can arrange force-placed insurance and add the cost to the mortgage balance, which usually costs more than a policy the borrower arranges. Condominium owners face a two-layer structure: the condominium corporation's strata insurance covers the building, while the owner typically insures contents and improvements inside the unit.
Property insurance vs other coverage
Property insurance is often confused with other products. Title insurance protects against title defects and fraud, not fire or water damage. Mortgage life insurance pays off the mortgage if the borrower dies. Premiums for property insurance reflect rebuild cost, location, deductible, and claims history rather than the mortgage balance, and they form part of the ongoing cost of ownership alongside the closing costs paid at purchase.
What is usually excluded
Standard policies exclude certain perils, and common exclusions include overland flooding, earthquakes, and damage from long-term neglect or a vacant home. Optional endorsements may add some of these back. Requirements differ by province and by insurer, so confirm current terms directly with the insurer or broker before relying on a specific exclusion.
Frequently asked questions
Is property insurance mandatory for a mortgage in Canada?
Yes. Lenders require proof of property insurance before advancing mortgage funds because the home is the collateral. For a condominium, the corporation's strata insurance covers the building and the owner usually needs a separate unit-owner policy. Requirements vary by lender, so confirm exactly what yours asks for before your completion date.
What is the difference between property insurance and mortgage insurance?
Property insurance covers the home against damage or loss and is arranged by the homeowner. Mortgage default insurance, such as CMHC coverage, protects the lender if a high-ratio borrower defaults. They are separate products with separate costs, and holding one does not replace the other at any point during the mortgage.
Does property insurance cover flooding?
Standard homeowner policies commonly exclude overland flooding and earthquakes, though optional endorsements may add coverage. Water damage from burst pipes or appliance failures is often included. Wording differs between insurers and provinces, so review the policy or ask a broker about the specific perils you need before you buy.
Sources
Related terms
- Title Insurance — Title insurance protects a homeowner or lender against losses from defects in a property's legal title that a records search may not reveal.
- Strata Insurance — Strata insurance is the building policy a strata or condominium corporation carries for the shared structure and common property, separate from an owner's own contents coverage.
- Mortgage Insurance vs Life Insurance — The difference between mortgage default insurance, which protects the lender on a high-ratio loan, and optional mortgage life insurance, which protects the borrower's household.
- Closing Costs — Closing costs are the one-time fees, taxes, and charges paid on top of a home's purchase price, separate from the down payment.
- Condominium Corporation — A condominium corporation is the legal entity created on registration of a condo plan that owns and manages the building's common elements.