Your home is probably the biggest investment you’ll ever make. It makes sense that you’d want insurance to protect it. However, there are a variety of types of insurance. Some types of insurance are mandatory in various circumstances, while others are not necessarily needed. Here is an overview of the different types of insurance a homeowner could have.
Mortgage Default Insurance
Mortgage default insurance is for your mortgage lender’s benefit, not yours, protecting their investment in the property. It will help pay for the cost of foreclosing on it, fixing it up and reselling it while recouping their costs from issuing the loan if you default on the mortgage. You typically have to pay mortgage default insurance if you put less than 20% down on the property. The less you put down on the property, the higher the default insurance rates. However, the existence of this insurance policy mitigates the risk to the Grande Prairie mortgage lenders in case of a default, allowing them to charge lower interest rate.
Mortgage Life and Disability Insurance
Mortgage life insurance will pay off your mortgage if you die while the debt is outstanding. This type of insurance isn’t necessary if you have a large enough life insurance policy to pay off the mortgage and any other outstanding debts you have plus give your family a financial cushion to live off of for a while. For some, this insurance policy may not be an option due to their age or health.
Mortgage disability insurance will not pay off the entire mortgage if you’re disabled. Instead, it will pay your mortgage payments up to a certain point for a specified period of time. In general, these policies will pay your mortgage and property taxes for a year or two. Note that these policies are capped at a certain amount like $10,000 a month. Nor will it pay off a second mortgage if you take one out unless you get a second insurance policy for that loan. A mortgage disability insurance policy is redundant if you have a good disability insurance policy, don’t have much left on the loan or can pay the mortgage if one adult is disabled.
Home Warranty Insurance
Home warranty insurance pays for repairs to a number of items in your home. Home warranty insurance generally covers unforeseen breakdowns in HVAC equipment, the electrical systems, or the plumbing. There are limits to these insurance policies. For example, the warranty isn’t going to cover repairs known to a buyer who bought the house “as-is”. If the issue is identified during the home inspection, the home warranty company won’t cover it. Those repairs need to be done by the home buyer or the home seller on their expense.
A warranty requires professional maintenance of the property. You can’t get the warranty to cover repairs to the furnace or air conditioner if you haven’t been replacing their air filters and otherwise maintaining them. If you want the warranty company to pay for the repairs, you’ll usually have to go with the repair people they authorize.
The insurance is for unforeseen breakdowns not wear and tear from old systems.
Home Appliance Insurance
Home appliance insurance is cheaper than home warranty insurance because it only covers the essential appliances in the home. For example, the typical insurance policy will only cover refrigerators, dishwashers and ovens. Some will cover clothes washers and dryers but not always, so read the fine print before you sign up for the insurance policy. It won’t cover portable appliances like window air conditioners and air filters. There’s no point in getting this insurance if you’re putting in all new appliances. Nor is it necessary if you have a decent savings account and can pay for repairs yourself. Like home warranty insurance, you’ll be stuck using an authorized repair company.
Call Whalen Mortgages your Trusted Mortgage Brokers for Mortgages in Grande Prairie to see what options are best for you!