Do You Need a Title Insurance in Canada?

Title insurance provides vital coverage against legal and financial risks associated with a property’s title.

What is title insurance?

Title insurance is a policy that protects homebuyers and mortgage lenders against financial losses arising from undiscovered defects, liens, encumbrances, or other legal issues associated with the property’s title.

“Title” refers to the legal ownership rights to a property. When you buy a home in Canada, the title is transferred from the seller to the buyer through a legal document called a deed, which grants you full ownership rights.

If title defects emerge, title insurance covers the legal costs and financial ramifications of resolving them and defending the insured’s interests as the property’s legal owner.

Why do you need title insurance in Canada?

While title insurance is not legally required in Canada, there are four reasons why it is vital for Canadian homebuyers and mortgage lenders:

Cover Major Risks

While coverage varies by provider, a standard owner’s title insurance policy in Canada provides crucial protection against:

• Title fraud: This includes forged deed transfers or someone illegally impersonating the true owner to sell the home. Title insurance covers legal costs and financial losses.
• Undiscovered liens or encumbrances: These include unpaid taxes, undisclosed mortgages, easements or creditor liens tied to the property from previous owners. You could be liable for these debts if they are undisclosed.
• Boundary and survey disputes: Disagreements with neighbours over property lines and placement of fences or structures. Or incorrect legal descriptions, surveys, easements or other errors in public records related to the property. Title insurance covers legal fees to settle these types of encroachment issues.
• Unknown title defects: These can prevent you from having full, sellable ownership of the property. Title insurance protects your legal interests as the property owner.

Most policies also cover your spouse and legal heirs if they inherit the property.

Added Peace of Mind

For most buyers, a home is the largest investment they will make in their lifetime. With so much on the line financially, title insurance provides peace of mind that your investment is protected starting the moment you take legal ownership. It defends your interests.

Streamline Closing

Your lawyer still conducts important title searches to verify ownership status before closing. However, title insurance can reduce the title search workload and liability burden on your lawyer. This allows for a smoother closing process, saving you legal fees.

A One-Time, Lifelong Cost

The title insurance premium is only paid once at the time of closing. However, it provides continuous coverage for as long as you or your legal heirs own the home. This one-time cost safeguards your investment for life.

What is Not Covered by Title Insurance?

To know what is not covered by your insurance policy, confirm with your provider, but six common exclusions may include:

• Pre-existing title defects are already known at the time of purchase
• Environmental hazards like land contamination
• First Nations land claims
• Title issues not disclosed in public records
• Problems revealed only through new property surveys
• Non-title related issues like zoning bylaw violations

Types of Title Insurance in Canada

There are two primary types of title insurance for Canadian homebuyers:

Lender’s Policy

This policy is mandatory for mortgage lenders to protect their financial interests. It covers the lender if legal title issues impact the validity of their registered mortgage on the property. It typically insures the lender up to the amount of your mortgage loan.

Owner’s Policy

This policy provides coverage for your interest as the property owner. It protects your equity stake in the home. An owner’s policy comes in two forms:

New Home Buyer’s Policy

This is purchased at the time of closing when you take ownership of a new property. You pay a one-time premium and receive lifelong coverage insured to the property’s total value.

Existing Owner’s Policy

If you’ve already owned your home, this policy can be purchased anytime after possession to get coverage. The coverage is customized based on when you buy the policy.

Both new and existing homeowners can benefit from an owner’s title insurance. Some insurers offer enhanced policies with added coverage beyond standard title risks. Your real estate lawyer can advise if this extended protection is recommended for your situation.

Residential vs. Commercial Title Insurance

Title insurance policies are available for both residential and commercial properties. Commercial policies typically provide more extensive coverage to address the unique needs of businesses.

Some insurers offer extended coverage options, such as increased protection for post-policy forgery or fraud or coverage for known title defects.

How Much Does Title Insurance Cost in Canada?

Title insurance represents a minor closing cost relative to the value it provides long-term. The cost varies based on five factors: the Property type (residential vs. commercial), Property value, Location, Type of policy (lender’s vs. owner’s), and Coverage amount.

• Premium range: $250 to $400 on average
• Property value: Premiums are higher for more expensive homes.
• Location: Base rates can vary between different provinces.
• Insurer: Each company sets their rates.

Though not mandatory, title insurance offers lifelong coverage for a relatively low one-time payment that provides coverage for as long as you own the property. There are no ongoing payments or renewal fees.
Given the risks covered, most Canadian homebuyers purchase a title insurance policy for the added peace of mind on their major investment.

How to Buy Title Insurance in Canada?

Use the following best practices when purchasing title insurance:

• Title insurance is typically purchased during the closing process when buying a new home. However, existing homeowners can also purchase policies after acquiring the property.
• Review your policy details thoroughly to verify accuracy.
• Make sure you understand the risks covered and excluded. Ask questions if any terms are unclear.
• Confirm the policy insures your home at its current total value.
• Compare premium rates offered by different Canadian insurance providers: First Canadian Title, Chicago Title, Lawyers’ Professional Indemnity Company (TitlePLUS), etc.

How to Make a Title Insurance Claim in Canada?

If you need to make a title insurance claim, there are 4 steps you should follow.

Step 1: Reviewing Your Policy Coverage

Review your title insurance policy before claiming to ensure the issue is covered. If you’re unsure, contact your insurer for clarification.

Step 2: Submitting a Claim Promptly in Writing

If you believe you have a valid claim, submit it to your insurer in writing as soon as possible. Include your policy number, contact information, and a detailed issue description.

Step 3: Providing Evidence and Documentation

Your insurer may require evidence and documentation to support your claim, such as a survey or legal documents. Provide any requested information promptly.

Step 4: Timelines and Process for Claim Resolution

The timeline for resolving a title insurance claim can vary depending on the issue’s complexity. Your insurer will investigate the claim and determine if it is covered under your policy. If approved, the insurer will work to resolve the issue, which may involve legal action or financial compensation.

What is the Land Title Assurance Fund?

In some Canadian provinces, additional options exist for protecting your title beyond traditional title insurance. Ontario’s Land Titles Assurance Fund (LTAF) provides compensation for losses related to title fraud or errors in the land registration system. However, the LTAF has limitations and may not provide as comprehensive coverage as title insurance.

While the LTAF provides some protection against title issues, it differs from title insurance in 3 ways:

• The LTAF only applies to properties in Ontario, while title insurance is available nationwide.
• The LTAF has a claims limit of $1 million, while title insurance policies can provide higher coverage amounts.
• The LTAF does not cover legal fees for defending your title, while most title insurance policies do.

Despite the LTAF in Ontario, title insurance is still recommended for most homebuyers. Title insurance provides more comprehensive coverage and can protect you against a wider range of potential issues.

Tips for Canadian Homebuyers on Title Insurance

Follow these tips to maximize the value of title insurance for your home purchase:

• Read your policy thoroughly and get clarity from your provider on any confusing terminology or unclear passages.
• Discuss title insurance coverage options with your real estate lawyer to determine the right policy to protect your home value properly.
• Ensure your home, land, secondary buildings, and all property components are insured to their full replacement value.
• Keep copies of your title insurance policy documents and materials safe, along with other ownership papers.
• Consider mortgage life insurance for more protection of your loan.

The bottom line

While optional, title insurance provides Canadian homeowners and lenders with invaluable financial protection by covering risks associated with a property’s legal title. It covers legal costs, liens, encumbrances, title fraud, etc.

This results in added peace of mind for homebuyers making the largest investment. Both new homeowners at the time of purchase and existing homeowners who buy policies later can benefit from title insurance protection. Given the minimal one-time cost to safeguard such a major asset, all Canadian homebuyers should consider title insurance.

FAQs about Title Insurance

Article Sources

1. Title Insurance – rbcroyalbank.com
2. Understanding Title insurance – fsrao.ca