The 3 Types of Insurance You Need When Buying a House

Zain Kaufid
Dec 4, 2025
5 min read

Buying a house is exciting. It's also overwhelming. Between the down payment, the inspection, the lawyer fees, and the closing costs, there's a lot to keep track of.

And then someone mentions insurance. Actually, multiple types of insurance. And suddenly you're wondering: How much insurance do I actually need? What's required?

What's optional? And what's just someone trying to sell me something I don't need?

Let's clear it up. When you buy a home in Canada, there are three main types of insurance that come into play. Some are required. Some are strongly recommended.

Understanding the difference could save you thousands of dollars and a lot of stress down the road.

1. Home Insurance (Property Insurance)

What it is: Home insurance protects the physical structure of your home and your belongings inside it. If there's a fire, a flood, a break-in, or a tree falls on your roof, this is the insurance that covers the damage.

Is it required? Yes. Your mortgage lender will require you to have home insurance before they'll hand over the money. They're protecting their investment — if the house burns down and you have no insurance, they're out hundreds of thousands of dollars.

What it covers:

Damage to the structure of your home (fire, wind, hail, vandalism)
Your personal belongings (furniture, electronics, clothes)
Liability if someone gets injured on your property
Additional living expenses if your home becomes unlivable and you need to stay somewhere temporarily

What it doesn't cover: Floods and earthquakes are typically not included in standard policies. You'll need to add those as separate riders if you live in a high-risk area. Also, general wear and tear or poor maintenance isn't covered — if your roof leaks because it's old, that's on you.

How much does it cost? It depends on the size and location of your home, but expect to pay anywhere from $1,000 to $3,000 per year. You can often bundle this with your car insurance for a discount.

Bottom line: This one is non-negotiable. You need it. Shop around, compare quotes, and make sure you understand what's actually covered before you sign.

2. Mortgage Default Insurance (CMHC Insurance)

What it is: If you're putting down less than 20% on your home, you're required to buy mortgage default insurance. This protects the lender (not you) in case you stop making mortgage payments and default on the loan.

In Canada, this insurance is provided by one of three organizations: CMHC (Canada Mortgage and Housing Corporation), Sagen, or Canada Guaranty.

Is it required? Yes, but only if your down payment is less than 20%. If you put down 20% or more, you don't need it.

How much does it cost? The premium is a percentage of your mortgage amount and varies based on your down payment:

5% down payment = 4.00% premium
10% down payment = 3.10% premium
15% down payment = 2.80% premium

On a $500,000 home with a 5% down payment ($25,000), you'd be insuring $475,000. The premium would be about $19,000, which is typically added to your mortgage balance — meaning you're paying interest on it for the life of your mortgage.

What it doesn't do: This is critical to understand: CMHC insurance does not protect you. It protects the lender. If you lose your job and can't make your payments, the lender gets paid, but you still lose your house.

Bottom line: If you can avoid it by putting down 20%, you'll save thousands. But if you can't, it's a cost you'll have to accept to get into the housing market. Just don't confuse it with insurance that actually protects your family.

3. Life Insurance / Mortgage Protection

What it is:This is insurance that pays off (or helps pay off) your mortgage if you die. It ensures your family doesn't lose the house on top of losing you.

Is it required?No. But it's arguably the most important of the three if you have a family that depends on your income.

The two options:

i) Option A: Mortgage Insurance (from the bank) The bank will offer you creditor insurance at closing. It's convenient, but it has serious downsides:

The bank is the beneficiary, not your family
Coverage decreases as you pay down your mortgage
Underwriting happens at claim time (meaning they can deny your claim after you die)
It's not portable — if you switch lenders, you lose coverage

ii) Option B: Term Life Insurance (independent policy) You buy a policy from an insurance company (not the bank). Your family gets the full death benefit in cash and decides what to do with it:

They can pay off the mortgage if they want or use the money for living expenses, childcare, moving costs, whatever they need
Coverage stays level for the entire term
Underwriting happens upfront. Once you're approved, you're covered
It's portable, i.e. stays with you regardless of mortgage changes or moving to a different lender
Often cheaper than mortgage insurance

How much does it cost? A healthy 35-year-old can get a $500,000, 20-year term life policy for around $40–$60 per month. Compare that to mortgage insurance which often costs $80–$120/month for shrinking coverage.

Bottom line:

If you have a partner, kids, or anyone who depends on your income, you need life insurance. But you probably don't need the version the bank is selling you at closing. Take the time to get an independent term policy that actually protects your family, not just the lender.

How to Think About All Three

Here's a simple way to remember what each one does:

Insurance Type	Who It Protects	What It Covers	Required?
Home Insurance	You and the lender	Physical damage to your home and belongings	Yes
CMHC Insurance	The lender	Lender's risk if you default	Only if down payment < 20%
Life Insurance	Your family	Loss of your income if you die	No, but highly recommended

What You Should Actually Do:

Before you close on your home:

Get home insurance quotes from at least three providers. Don't just take the first quote the bank offers you. Shop around.
Understand if you need CMHC insurance. If you're putting down less than 20%, it's mandatory and will be added to your mortgage. Factor that cost into your budget.
Don't sign up for mortgage insurance at the bank. Tell them you'll get back to them. Get a term life insurance quote first and compare. In most cases, term life will give you better coverage for less money — and actually protect your family instead of just the lender.

After you move in:

Review your coverage annually. As your mortgage balance goes down and your family's needs change, make sure your insurance still makes sense.
Bundle where it makes sense. You can often save money by bundling home and auto insurance. But don't bundle blindly — make sure you're still getting competitive rates.

Let's Make Sure You're Properly Covered

Buying a home is one of the biggest financial decisions you'll ever make. Getting the right insurance in place isn't exciting, but it's one of the most important steps to protect that investment and your family.

If you're buying a home and want to make sure you're getting the right coverage at the right price, let's talk. I'll walk you through what you actually need, help you avoid overpaying, and make sure your family is protected.

Book a Call with Me