What Insurance Do You Need When Buying a Home?

Buying a home in Ontario triggers more insurance decisions in one month than most people make in a decade. Some are required by the lender, some are sold at the signing table, and some are quietly your responsibility.

The short version: your lender will require home insurance and, if you’re putting down less than 20%, mortgage default insurance. Your lawyer will arrange title insurance. Then comes the part nobody requires but everyone needs: a plan to keep paying the mortgage if you die or can’t work. For most families that’s a personal term life insurance policy plus disability insurance, not the mortgage insurance the bank offers.

This guide is for first-time buyers and anyone moving up to a bigger mortgage in Ottawa or elsewhere in Ontario. We’ll sort the required from the optional, explain what the bank’s offer actually is, and put indicative prices on the alternatives.

Insurance the lender requires at closing

Three products are effectively non-negotiable. Hayes Family Insurance doesn’t sell any of them, so this is simply what you need to know.

Home (property) insurance. Every lender requires proof of a home insurance policy before funding the mortgage, because the house is their collateral. It covers the structure, your contents and your liability. Shop it through a property and casualty broker; it’s a separate licence from life and health insurance.

Mortgage default insurance. If your down payment is under 20% of the purchase price, federal rules require default insurance from CMHC, Sagen or Canada Guaranty. It protects the lender if you stop paying. The premium is a percentage of the mortgage and is usually rolled into the loan. Ontario charges provincial sales tax on that premium, which has to be paid at closing rather than added to the mortgage.

Title insurance. Your real estate lawyer will almost always arrange a title insurance policy at closing. It protects against title defects, survey problems and fraud, and most lenders insist on it. It’s a one-time premium.

None of these protect your family’s ability to stay in the home. That’s the gap the rest of this article is about.

What the bank will offer you (and why to slow down)

Somewhere in the mortgage paperwork you’ll be asked to accept or decline the lender’s own mortgage life insurance and mortgage disability insurance. It’s optional. A lender cannot make it a condition of the loan.

It’s worth understanding what you’re being offered. Bank mortgage insurance is a form of creditor insurance, and it works differently from a policy you own:

• The bank is the beneficiary. The payout goes to the lender to clear the balance. Your family gets a paid-off house but no cash for anything else.
• The benefit shrinks. Coverage falls as your mortgage balance drops, while the premium typically stays the same.
• Underwriting happens at claim time. You answer a few questions at signing, and the insurer investigates your health only after a claim. That’s when problems surface.
• It isn’t portable. Switch lenders at renewal and the coverage ends. You reapply at your new age and health.

A personal term life policy fixes all four: your family is the beneficiary, the amount stays level, underwriting happens up front, and the policy follows you no matter who holds the mortgage. We go deeper in mortgage insurance vs. life insurance and, for a worked example, a family compares bank mortgage insurance vs. term life.

If you’re at the signing table and haven’t arranged your own coverage yet, it’s reasonable to accept the lender’s insurance temporarily and cancel it once your personal policy is in force. Better still, apply early so you never need it.

Term life insurance: covering the mortgage the right way

Term life is the workhorse of home-buying insurance. You choose an amount and a term, pay a level premium, and if you die during the term your named beneficiary receives the full amount tax-free.

How much? At minimum, the mortgage balance. In practice, most families size the policy to also replace income for the years children depend on it, which is why $500,000 to $1 million is common. Our guide to how much life insurance you need walks through the calculation.

How long? Match the term to the mortgage. A 25-year amortization with young kids usually points to a 25- or 30-year term; a 15-year balance on a second home might only need 10 or 15. See 10 vs. 20 vs. 30-year term for the trade-offs.

Both partners. If two incomes service the mortgage, both need coverage. And if one partner stays home, their contribution still has a replacement cost (childcare alone can rival a salary), so they need coverage too.

Here’s how the two approaches compare for a typical $500,000 mortgage:

	Bank mortgage life insurance	Personal term life ($500K, 25-year)
Who receives the payout	The lender	Your named beneficiary
Coverage over time	Declines with the balance	Level for the full term
Premium over time	Typically level	Level for the full term
When health is assessed	After a claim (post-claim underwriting)	Before approval
If you switch lenders	Coverage ends	Unaffected
Convertible to permanent	No	Usually, to age 65–75
Extra cash for family	None	Anything above the mortgage balance

Disability and critical illness: the risks homeowners skip

Ask most new homeowners what would stop them paying the mortgage and they’ll say “if I died.” An illness or injury that keeps you off work for months is the more likely event during a working career, and it’s the one that goes uncovered.

Disability insurance

If you can’t work, the mortgage doesn’t pause. EI sickness benefits pay 55% of insurable earnings for up to 26 weeks, capped at the annual maximum, which for a two-income household in Ottawa often doesn’t cover the mortgage payment on its own. See does EI cover you if you can’t work?

Individual disability insurance replaces a set monthly benefit (typically 60–70% of income, tax-free if you paid the premiums yourself) until you recover or reach the end of the benefit period. Two things to check:

• Group coverage first. If you have long-term disability through work, find out the benefit amount, whether it’s taxable, and the definition of disability. Many group plans switch to “any-occupation” after two years.
• Own-occupation matters. A policy that pays if you can’t do your job is far more useful than one that pays only if you can’t do any job.

The lender will also offer mortgage disability insurance. It has the same structural drawbacks as mortgage life (pays the lender, post-claim underwriting, not portable), and it only covers the mortgage payment. See mortgage disability insurance vs. personal coverage.

Critical illness insurance

Critical illness insurance pays a tax-free lump sum, commonly $50,000 to $250,000, on diagnosis of a covered condition such as cancer, heart attack or stroke, after a survival period of typically 30 days.

For a homeowner, that lump sum can cover a year of mortgage payments while you recover, pay for treatment costs OHIP doesn’t, or let a spouse take unpaid leave. It complements disability insurance rather than replacing it; if the budget only stretches to one, disability usually comes first because it covers a broader range of situations. See is critical illness insurance worth it?

A home-buying insurance timeline

Stage	What to do
Pre-approval	Get life and disability quotes so you know the monthly cost before you set your budget.
Offer accepted (conditions waived)	Apply for term life and disability. Underwriting takes 2–6 weeks.
2–3 weeks before closing	Arrange home insurance; your lender needs proof. Confirm title insurance with your lawyer.
Signing the mortgage	Decline the lender’s mortgage life/disability if your own coverage is approved, or accept it temporarily if not.
After closing	Update beneficiaries, review your will, cancel any temporary creditor insurance once your policy is in force.
Each renewal	Re-check coverage amounts against the remaining balance and your family situation.

What it costs: indicative figures for Ontario buyers

Every figure below is illustrative. Actual premiums depend on age, health, smoking status, occupation, coverage amount and insurer, and they change over time. A broker’s quote is the only real number.

Term life, $500,000, 20-year term, healthy non-smoker:

Age	Indicative monthly premium (male)	Female (roughly 15–25% lower)
30	$20–$30	$17–$25
35	$25–$38	$21–$32
40	$32–$48	$27–$40
45	$48–$70	$40–$58

A 25- or 30-year term costs more than a 20-year term at the same age, often by 20–40%, because the insurer is on the hook for longer. Smokers pay roughly 1.7–2.5 times the non-smoker rate. Our life insurance cost in Ontario guide has fuller tables.

Disability insurance: individual policies commonly run in the range of 1–3% of the income being insured, so someone earning $80,000 might pay roughly $70–$200 a month depending on occupation class, elimination period, benefit period and riders. See disability insurance cost in Canada.

Critical illness, $100,000, 20-year term, healthy non-smoker: roughly $25–$45 a month at 30 and $45–$80 at 40.

Put together, a 35-year-old couple can typically protect a $500,000 mortgage with term life on both partners for something in the region of $50–$70 a month combined, which is usually less than the lender’s mortgage insurance for a declining benefit.

Ontario-specific notes for buyers

• Land transfer tax. Ontario charges a provincial land transfer tax, and Toronto adds a municipal one. First-time buyers can claim a provincial rebate that offsets part of the cost. It’s a closing cost to budget for, not something insurance covers.
• Beneficiary designations and probate. Life insurance paid to a named beneficiary bypasses Ontario’s Estate Administration Tax (roughly 1.5% of estate value above $50,000). Naming your spouse directly, rather than your estate, keeps the payout fast and outside probate.
• Update your will. Buying a home is a common trigger for writing or revising a will, especially if you’re buying with a partner you’re not married to. Ontario law does not give common-law partners automatic inheritance rights, so confirm your arrangements with a lawyer.
• Kanata, Nepean, Barrhaven and beyond. We’re on Preston Street in Ottawa and meet buyers in person across the city, and we work with families across Ontario by phone, video and e-signature. Rates are the same everywhere in Canada; they’re set by age, health and insurer, not postal code.

Next step

You’ve already got a lawyer, a lender and a home inspector. Add an independent broker for the coverage that protects your family rather than the bank.

Hayes Family Insurance has helped Ontario homeowners since 1996. We compare 30+ Canadian insurers and handle the underwriting so coverage is in place before you get the keys. Our advice is free; insurers pay us.

Compare quotes from 30+ Canadian insurers in about two minutes, free and with no obligation, or contact us with your closing date and we’ll work backwards from there.