Title Insurance vs. Home Insurance: What is the Difference?

By Mirjana (Mira) Markovic

Dear Friends,

Purchasing a home is likely one of the largest investments that you will ever make in your lifetime. Therefore, as a homeowner, you want to ensure that you protect this precious asset. Although often misunderstood, home insurance and title insurance both protect the homeowners but on a separate spectrum.

Home Insurance

In Ontario, although not necessarily a requirement in the same way auto insurance is, home insurance plays an important role in protecting your home. Keep in mind that if you are contemplating purchasing a home, or obtaining a mortgage, your lender (i.e. TD, BMO, etc.) will likely require you to secure a home insurance policy first. This is because your lender also has an interest in the property and will wish to protect it before advancing the mortgage funds.

A home insurance policy covers expenses that occur when something unexpected or accidental occurs to your home and/or your belongings. Common features of a home insurance policy include:

• Damage to the contents of your home (furniture, clothing, electronics);
• Theft of personal property in your home;
• Living expenses if your home is uninhabitable;
• Damage to your home caused by fire, hail, windstorm, and vandalism; and
• Structural damage to your home or detached structures.

It is important to note that home insurance policies also cover more than just the aforementioned. It will also take effect if someone injures themselves on your property, if you damage someone else's property, or accidentally injure someone.

Title Insurance

The word “title” is a legal term that asserts that you have legal ownership of property. In order for this process to take place, the seller will typically sign the transfer document also known as a deed over to the purchaser, which is registered in the government land registry system. When completed, the title is transferred from the seller to the purchaser and the purchaser obtains the legal ownership of the property they purchased.

Title insurance is an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership. Title insurance is also not a requirement in Ontario, however, for the same aforementioned reason your lender requires a secured home insurance policy they will seek confirmation of a title insurance policy.

To obtain a title insurance policy, you will be required to pay a one-time fee called a premium. The cost of the title insurance varies based on the value of your home. The said policy will protect you as long as you own the property, and will cover losses up to the maximum coverage as set out in the policy.

Common features of a title insurance policy include:

• Unknown title defects (title issues that prevent you from having clear ownership of title);
• Existing liens against title (i.e. previous owners had unpaid debts from utilities, mortgages, property taxes, or condominium charges against the property);
• Encroachment issues (i.e. structure on your property requires removal as it is on your neighbour’s property);
• Title fraud;
• Errors in surveys and public records; and
• Other title-related issues may affect your ability to sell, mortgage, or lease the property in the future.

Common exclusions of a title insurance policy include:

• Known title defects which were revealed before the purchase;
• Environmental hazards (i.e. soil contamination);
• Native land claims;
• Issues discovered by a new survey or inspection of the property (i.e. boundaries are smaller than originally thought);
• Matters not listed in the public record (i.e. unrecorded liens and/or encroachments); and
• Zoning bylaw violations from changes, renovations, or additions to the property.

Carefully review your home insurance and title insurance policies, as each may include additional exclusions and exceptions that are specific to your property. Therefore, it is important that you speak with your lawyer to ensure that you obtain proper coverage.

This article was written by Mira Markovic. She can be contacted at mira@sorbaralaw.com for further inquiries.