Why lenders insist on it
Your home is the collateral behind your mortgage, so lenders want to make sure it's protected against fire, water damage, and other risks from the moment they fund the loan. Without proof of insurance, your lawyer can't complete the closing.
What your lender needs to see
You'll typically need to provide a binder letter from your insurance provider showing the effective date, coverage amount, and your lender listed as the loss payee or first mortgagee on the policy.
- Binder letter with the correct effective date
- Coverage amount that meets or exceeds your mortgage balance
- Lender listed correctly as first mortgagee
Shopping for the right policy
Rates and coverage can vary quite a bit between insurers, so it's worth getting a few quotes rather than accepting the first offer. Pay attention to deductibles, water damage coverage, and any exclusions specific to older homes or homes with finished basements.
Condo owners have different needs
If you're buying a condo, the building's master policy covers common areas and the structure, but you still need your own unit owner's policy for contents, upgrades, and liability. Lenders will ask for proof of this coverage separately.
Frequently asked questions
- How far in advance should I arrange home insurance?
- It's best to have a quote and binder ready at least a week before closing so there's no last-minute scramble.
- What happens if I forget to arrange insurance?
- Your closing can be delayed since your lawyer legally cannot release mortgage funds without proof of insurance in place.
- Does title insurance replace the need for home insurance?
- No, they cover completely different risks. Title insurance protects against ownership and legal issues, while home insurance covers physical damage to the property.