Condo Insurance Basics
One of the most important factors to consider when purchasing a condo is how you are going to insure and protect your purchase. There are many types of insurance that you will need - some are mandatory, and may be included in your purchase price, and others are not. Included in your purchase are New Home Warranty insurance (if the unit is brand new or pre-construction), Standard Unit insurance and CMHC insurance (if you made a down payment of less than 20%). Insurance that is not included in the purchase price, but is equally as important, is comprehensive home insurance.
Insurance Included in Your Purchase
In most provinces, if you purchase a pre-construction condo or a brand new unit, you are covered under the New Home Warranty insurance plan. The full coverage is available for one year and covers the buyer against certain defects in work and materials. Generally, the fee for the warranty is included in the purchase price of the condominium, or it may appear on the statement of adjustments.
The warranty program can be voided at any time if the homeowner fails to abide by the restrictions outlined in the program. Buyers should consult their province's program before going ahead with modifications or additions to the unit.
The details of the program vary by province. Please see the chart below for more information.
|British Columbia||Yes||Various Providers|
|Quebec||Yes (for buildings 4 floors and under)||Various Providers|
|Alberta||No. However, a mandatory program was approved in November 2012. Implementation date is not set.||Alberta New Home Warranty Program|
|Manitoba||No. However, a mandatory program was approved in November 2012. Implementation date is not set.||New Home Warranty Program of Manitoba|
|Saskatchewan||No||New Home Warranty Program of Saskatchewan|
A certain amount of your condo maintenance fees are allocated to the condominium corporation's Master Insurance Policy, which will cover damage to the common elements plus the "standard units". Standard Unit insurance differs from building to building, so it's important to understand how it is defined in yours.
Commonly, the standard units are defined as the elements that your unit was supposed to come with. For example, if you upgraded the countertops in your condo and they were damaged in a flood or fire, the Standard Unit insurance would only cover an amount up to the price of the original countertops.
Mortgage default insurance, more commonly known as CMHC insurance, is mandatory for any mortgage where the buyer has put down less than 20%. This insurance is purchased to protect the lender, should you ever default on your mortgage. The premium rate is between 1.75 per cent and 2.75 per cent, depending on how much you put down. It is added to your mortgage loan and paid out over the life of your mortgage.
Beyond the New Home Warranty insurance and Standard Unit insurance, it's important to get home insurance that covers:
1. personal property, such as appliances and furniture;
2. structural improvements that go beyond the Standard Unit insurance, such as the carpet and countertops;
3. liability for harm you may cause. This protects homeowners against any financial burden that arises if they unintentionally cause someone bodily harm or property damage at home or anywhere in the world; and
4. loss assessment. This protects homeowners from the rare case that your condo building's insurance does not entirely cover an amount that the building has outstanding, and the excess damages are passed onto the individual owners.
These four components make up what most insurance companies call a comprehensive coverage plan. Consult your real estate lawyer to determine if there is any additional insurance that you may need for your particular case.
Factors to Consider
After you have determined the appropriate amount of homeowner's insurance to purchase, you have the option of choosing how you will be compensated in the event that you need to make a claim. Cash value compensation is the basic type of coverage, which replaces the original value of the insured items minus any depreciation. Replacement cost coverage, which comes at a monthly premium, replaces any insured items with something of the same value today.
If you plan on renting out your condo, you may want to consider purchasing additional insurance that will cover any lost rent that arises where the building is at fault. This will not cover you if you simply cannot find a renter.
As well, you may want to suggest that your renter purchase their own renter's insurance policy. This will guarantee that their contents are insured should there be an accident in the building causing your unit to be damaged.