Everything you need to know about Mortgage Insurance

You’ve had your offer accepted on the house you want to buy, and you’ve gotten confirmation that your mortgage was approved – great news! All that’s left on your “to do” list is to sort out the insurances you need to make sure nothing delays you from getting the keys to your new home.

Homeowner’s insurance – the insurance you need

The only insurance you need as a legal requirement when getting a mortgage is homeowners’ insurance. This covers your home against any damage that may need to be repaired and applies to the structural aspects of your home i.e. the walls, roof, floors, fixtures and fittings etc. Borrowers need to ensure that they have this insurance in place, and that it covers the full value of their property.

This type of insurance is required, because if for instance, a fire broke out in your home, without insurance to cover the costs of the repairs, the value of your house would decrease, so the house wouldn’t be worth the amount of money you borrowed to purchase it.

TTMB offers coverage under their Group Homeowner’s Insurance, at competitive rates. You are required to pay one year’s premium, in advance, at the closing of your mortgage. An Insurance Certificate is issued to you with the details of your coverage and for subsequent years, the insurance premium is broken into easy and affordable monthly payments, which are added to your mortgage installment. TTMB will make subsequent payments to the insurer on your behalf at the annual renewal date and provide an updated certificate for your records at that time.

You have the option to seek this coverage on your own, but it must be in place before funds are disbursed to acquire your property.

This Homeowner’s insurance does not cover the contents in your home. A separate insurance policy is required to protect your belongings.

Steps to ensure that your property is insured at its full replacement cost

The first step towards obtaining homeowner’s insurance is determining the replacement value of your home. This information is included in the valuation report when you acquire your home, or it can be obtained from a Quantity Surveyor subsequent to acquisition.

A condition of your mortgage is generally that the insurance coverage on the mortgaged property be maintained at the full replacement value throughout the term of the loan.

Replacement cost is the amount of money it would take to repair or rebuild your home with materials similar to the quality that was initially used in the construction your home. Should a claim be made, full replacement cost coverage ensures that there is no deduction arising from being under-insured or due to age or wear and tear.

If a claim is made and your property is under-insured, the insurer will adjust the amount of the settlement of the claim to cater for the shortfall in the insured value. For example, if the replacement cost of your property is $1 million and the current insurance coverage on your property is $300,000.00, a 10% claim for fire, flood or other disasters will result in a payment by the insurance company in an amount of $30,000.00. This amount represents 10% of the existing coverage on your home which was significantly less than the claim. It is therefore in your best interest to ensure that your property is adequately insured.

A replacement cost valuation is recommended every three (3) years, in order to ensure that the insurance coverage is on par with the replacement value of your property.

Other types of insurances to consider

What happens if you lose your job or unable to work because of poor health? You need to consider giving yourself and your family the comfort and peace of mind that regardless of what happens, your loans will be paid off.

Some lenders require life insurance on the life of the borrower so that the loan is covered in the event of the borrower’s death. At TTMB, life insurance is not required, however, we strongly recommend that coverage is in place to cover your loan balance. TTMB’s Advance Protector Insurance, protects your home by safeguarding your family against having the expense of a mortgage loan balance, in the event of your untimely death.

TTMB’s Advance Protector Insurance provides for both total disability and temporary disability. If you become totally and permanently disabled and are no longer able to work, your loan balance will be paid off in full, upon diagnosis. If you are unable to work for an extended period due to sickness or injury, your monthly instalment will be paid, up to the monthly maximum of $10,000. Temporary disability must last for 30 consecutive calendar days before you are eligible to receive benefits. Special conditions apply so learn more so you can make an informed decision.

Tips to guide you when selecting an insurance company

Obtain at least three quotations. Indicate the amount of coverage you require, based on the replacement value determined. You should also indicate if your property has any additional precautions, like having retaining walls or whether it is located in a flood prone area, to ensure that such risks are considered and covered.
Examine the perils covered thoroughly. Perils covered by property insurance typically include select weather-related afflictions, including damage caused by fire, smoke, wind and more. Property insurance also protects against vandalism and theft, covering the structure and its contents. Property insurance also provides liability coverage in case someone other than the property owner or renter is injured while on the property and decides to sue.
Ask around. Seek feedback from relatives, friends or coworkers and ask for referrals or ask someone you know who may have filed a claim with a specific insurance company. Ask questions about the service and the speed with which the claim was appraised, processed, and paid.
Confirm with your Mortgage Provider if they offer insurance coverage through their institution. This means that it can be built into your monthly payments and they can then make subsequent payments to the insurer on your behalf at the annual renewal date. An updated Certificate is issued to you for your records annually once it is renewed.

Once your dream of homeownership is a reality you must live up to the challenge of maintaining and protecting this important investment. While becoming a homeowner is an exciting prospect, it also comes with tremendous responsibilities and costs. This requires a mental shift, accepting that this is your responsibility and acknowledging that you will do whatever needs to be done to ensure that nothing jeopardizes your ownership and that includes researching and ensuring that your most prized asset is fully protected, and you are prepared.