Is insurance good? Of course it is. It’s a great way to protect yourself from the unexpected.

Is insurance bad? It is when you have too little or too much! Many people fall into the trap of being over-insured with policies they don’t need or could never collect on. Can you guess why? Unfortunately, it’s because the people who sell them are handsomely rewarded at the time of sale, and often with ‘trailer’ fees that continue to compensate them for as long as you remain a client.

Here’s a brief explanation of some of the types of insurance lurking around a real estate transaction:

Mortgage Default Insurance is usually required if you buy a residential property with less than a 20% down-payment. CMHC insurance doesn’t cover you though; it covers the bank if, for any reason, you can’t pay them. The Canada Mortgage & Housing Corporation (CMHC) is one of the things about our banking system that makes us the envy of the rest of the financial world. It protects our banks and, at the same time, allows us to buy homes with as little as 5% down-payment. Generally, the best way to avoid CMHC insurance is to make a larger down-payment.

Mortgage life Insurance pays out a mortgage  in full on the passing or incapacity of a borrower. Your broker or bank is actually required to at least try to sell you this insurance. They make it easy: tick this box, sign here. Why? Mostly because it’s a huge profit centre for the institution. The concept is great, but so is the cost! Premiums never decrease, even as your mortgage balance (and potential benefit) shrinks to zero.  Compare against whole life and/or disability insurance, and be prepared to decline when you discover the truth. (And investors: Unlike your personal residence, a revenue property is not a liability; it’s an asset and usually won’t burden your estate upon your passing.)

Fire Insurance protects you (and your lender) against loss or damage in the event of a fire. If you purchase a condominium, fire insurance should be included in your condo fees, but it’s always a good idea to make sure the condo corporation is adequately insured. We like fire insurance. It’s inexpensive, and invaluable when you need it!

Content (or Tenant) Insurance covers the contents of your home (and sometimes other possessions as well). If you own your home, it’s optional. If you are a tenant, don’t be surprised if a good Landlord makes this insurance a requirement of your tenancy. It’s very inexpensive and provides that extra bit of security that could make the difference between disappointment and devastation. (Don’t expect fire insurance to cover your personal belongings.)

Landlord Insurance is specific coverage for those who are in the business of renting property. It provides additional coverage where other types of insurance may fall short, and addresses special needs of landlords.

Proper insurance allows us to sleep soundly at night, knowing that we have at least considered the unthinkable or unexpected. Just make sure you take the time to understand what you’re paying for.