When purchasing a home, your Canadian mortgage lender will typically require title insurance. This is a one-time cost that is part of your closing costs. Title insurance will protect your lender in the event there are outstanding claims on your new property. Continue reading to learn what title insurance covers, how much it costs and whether you should buy the optional owner’s policy.
Title is a term used by attorneys to refer to the right of ownership over land. When you buy a house, you receive the title to that property. The title is then filed in the government's land registration system.
However, the full title is not transferred in some instances as another party has partial ownership of your new land. This could be due to previously unpaid property taxes, a defect in the land registration system, or a variety of other reasons. These events tend to be a surprise as their ownership stake is not listed on a central land registration system.
A title is not the same thing as a deed. A title is a term used to refer to the ownership of a property. A deed is a document that transfers the title to another person. If you’re purchasing a home, a property deed will transfer the property’s title from the seller to the buyer. That’s why land transfer tax is sometimes called a deed transfer tax, such as in Nova Scotia. A deed transfers the title, or ownership, of the property.
As stated previously, title insurance protects you if a third party has an unexpected lien, easement, or claim on your land. Some common examples include:
Liens: A contractor, tax authority, or lender who hasn't been paid can link a lien to the property. You don't want to be stuck paying the previous owner's outstanding invoices.
Errors: There could be errors in your title, such as if the title was improperly registered or an issue with the public records for the property. Examples could include a previous owner that hasn't been discharged from the title or spelling mistakes that grant the title to someone else.
Title Defects: These are issues that can affect your property ownership that was not known beforehand at purchase. For example, there might be easements that were not documented or boundary disputes with your neighbours resulting in encroachment. Perhaps there are even issues with zoning by-laws that have been unaddressed by the previous owner that could affect your use of your property.
Fraud: Title fraud can include someone impersonating the owner of the property or forged documents. It also protects someone stealing your title and then selling the home or getting a mortgage to receive money from it.
Title insurance is protection that prevents you from having to pay the other party's claim on your land. Title insurance will also shield you against fees associated with the legal costs of proving your title or contesting another party’s partial interest in your property.
The two types of title insurance protect different parties.
Lender’s Policy: This is the mandatory policy that all lenders require homebuyers to purchase. Although this policy only protects the lender, a title search is completed. The title search should find any other ownership claims.
Owner’s Policy: For as long as the property is owned, this policy protects the buyer from title-related losses stated in the insurance coverage.
Both the Lender's and owner's policy should protect against:
Your title insurance policy will cover you as long as you own your property, and it will endure losses up to the maximum coverage provided in the policy. It may also cover most legal charges involved in restoring the title of your home.
Title insurance exclusions
Although the insurance covers many things, there are some title-related exclusions to be aware of. Your policy may not cover:
Although these are standard exclusions, you'll need to carefully review your policy to see everything not covered.
Non-title related exclusions
Title insurance is not a home insurance policy. It will not protect you from non-title-related issues. In general, your title insurance will not provide compensation for:
Make sure to read your title insurance policy for a complete list of exclusions, restrictions, and terms and conditions.
If your title insurance policy has explicitly legal services coverage, you may be able to make a malpractice claim if the error was from your lawyer’s negligence. TitlePLUS title insurance has legal service coverage. However, not all title insurance policies from other title insurance companies have legal service coverage. If your title insurance policy does not cover legal services, you will need to sue the lawyer for damages.
In general, you must buy a lender's title insurance policy upon completing your property purchase agreement. Occasionally, an owner's policy is required at closing to ensure everyone is protected, but this is typically optional. Owners can also purchase protection at any time - even after owning the property for multiple years.
Although title insurance costs range between $200 - $500, prices vary based on various factors. The value of your home, insurance provider and province you live in will all affect the cost of your one-time fee.
Major title insurance companies in Canada
To learn more about the cost of title insurance for your property, you can receive a quote from the following companies. According to RBC, the major recognized title insurance companies are shown on the following list.
|Canada’s Major Insurance Companies|
Purchasing title insurance can be overwhelming. Make sure to follow these tips for the best results.
Title insurance policies tend to contain lots of legal terminology that is difficult to understand. It's best to talk with your lawyer or insurance provider to clarify any questions you have.
Also, keep in mind that you are the client and can select any title insurance firm that best suits your requirements.
If you are in a scenario that requires you to use your title insurance policy, follow these steps for the best results:
Title insurance is not a legal requirement in Canada. However, your mortgage lender may require you to purchase title insurance to obtain a mortgage with them. Title insurance also comes with a host of benefits, including:
In Ontario, all insurance companies are licensed and overseen by the Financial Services Commission of Ontario (FSCO). Most mortgage lenders will require homebuyers to purchase lender's title insurance.
Although buyer's title insurance is not mandatory in Ontario, real estate lawyers are required to advise their clients of the policy as an option to purchase.
The Autorité des Marchés Financiers (AMF) regulates the financial industry in Quebec. While owner's title insurance is not mandatory in Quebec, most lenders will require lender's title insurance to protect themselves.
The BC Financial Services Authority (BCFSA) oversees the province's financial system. Similar to Ontario and Quebec, most mortgage lenders will require the purchase of lender's title insurance.
However, unlike Ontario, lawyers in BC are not mandated to advise clients on buyer's title insurance.
The Alberta Superintendent of Insurance regulates the insurance sector. While your lender may require title insurance in Alberta, the province does not mandate it.
Additionally, lawyers are not required to discuss buyer's title insurance options with clients. As a result, many Alberta homeowners are unaware of the options available to them.
When do you usually purchase residential title insurance?
You'll most likely need to buy residential lender's title insurance when you acquire your house. However, you can purchase buyer's title insurance at any time after the closing. It's worth noting that title insurance for existing homeowners is somewhat different from the type taken out when purchasing a home.
How much does title insurance cost?
Title insurance for individual residences varies in price based on the value of your property and the title insurance company you choose. However, the one-time payment typically costs between $200-$500.
How long does the coverage last?
Residential title insurance covers you while you own the property. Additionally, most policies extend coverage to your heirs, spouse, or children if they inherit the house under certain conditions.
Where to purchase title insurance?
You can buy title insurance from one of the major Canadian title insurance companies listed above. Additionally, you can work with a lawyer or insurance broker.