Legal Matters: Why you need proof of insurance when closing deal on a home purchase
Toronto-based real estate lawyer Jeffrey Cowan advises a purchaser on providing proof of insurance.
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Q: We are purchasing a new home in a couple of weeks and our lawyer has requested that we provide proof of insurance in order for the deal to proceed. Presently, we are in a condo and when we purchased four years ago, we didn’t have to provide proof of insurance. Why the difference over the past four years?
A: The requirement for provision of insurance is a necessity for both a condo and a house; however, the condo corporation has an overall insurance policy that covers the building so that if it were to burn to the ground, the bank would still be covered (your lawyer at the time would have obtained this from the condo corportation). In single-family dwellings, the purchaser is responsible to obtain a fire insurance policy naming the mortgagee (the bank) as the loss payee. If the house burns to the ground and for some reason you as the owner decide not to rebuild, the bank is guaranteed to get the money they advanced for the mortgage back from the insurance company.
A word of warning though, in both circumstances you need to have insurance for general liability (if someone slips and falls on your exterior sidewalk or in the kitchen of your condo) and insurance covering theft. So, although the fire insurance is covered by the condominium building, you still need personal insurance for your unit and your belongings.
Jeffrey Cowan is a real estate lawyer and can be reached at firstname.lastname@example.org.