Home Insurance Before Completion: The Step Buyers Forget Until the Last Week

There is one step in a purchase that almost nobody plans for, and it sits at the end.

Your lender will not send the mortgage money to your lawyer until it has proof that the home is insured, with the lender named on the policy. Most lenders want that proof several days before completion. Buyers usually start looking for it in the final week, and on an older home that is when it gets expensive.

What the lender actually asks for

Your lawyer or notary cannot complete the purchase without the mortgage funds sitting in their trust account. The lender releases those funds once its conditions are met, and one of those conditions is insurance.

Specifically, the lender wants a binder from an insurance company. A binder is a short document confirming that coverage is in place, effective on the completion date, for at least the amount the lender requires, with the lender named as loss payee.

The loss payee clause makes your lender the party paid under the policy if the building is damaged. The Financial Consumer Agency of Canada describes it as making your lender the beneficiary of the policy. That makes sense from the lender's side: it has several hundred thousand dollars tied to the building, so it wants the insurance money if the building burns.

Two details catch people out.

The lender's name has to be exact. Lenders provide a specific legal name and a mortgage reference number, and the binder has to match. A binder naming the wrong entity gets rejected and has to be reissued, which costs a day.

The date is earlier than you think. Many lenders want the binder several business days before completion, not on the morning of. Ask your lawyer for your lender's actual deadline as soon as your subjects are removed.

Two different policies for two different purchases

What you are buying decides what kind of policy you need, and the two are built around different questions.

A detached home policy insures the building. The structure, the roof, the foundation, usually a detached garage or shed, plus your contents and your liability. The central figure is the cost to rebuild the house.

A strata owner policy leaves the building out. The strata corporation carries a policy on the building itself. Yours covers what the strata policy does not. The Province lists what belongs on an owner's policy:

• Improvements to your unit, made by you or by a previous owner
• Personal property, meaning furniture, clothing, electronics, and the rest of your contents
• Personal liability for injury or damage you cause to someone else
• Loss assessment, for damage to common property or to other units that you are held responsible for
• The strata corporation's insurance deductible

Buyers often price a condo policy against a house policy and wonder why the condo one is cheaper. The building is on someone else's policy. What that comparison hides is the item at the bottom of the list.

The strata deductible line is the one to read

The Province states that strata corporation insurance deductibles in BC commonly run from $100,000 to $750,000 or higher, and that an owner may be required to pay that deductible when a claim starts in their unit.

You do not have to be careless for this to land on you. A supply line fails behind a wall in your unit, water runs into three units below, and the strata claims on its policy. The deductible is charged back.

Strata deductible coverage on your own policy is what absorbs that. The limit on your policy should be checked against the deductible shown on the strata's current insurance certificate, and the certificate is in the documents you receive during your subject period. We go through the whole mechanism, including how the courts have handled it, in strata insurance in BC.

Do that check while you still have a subject to remove. The deductible number moves at the strata's renewal, so a figure from an older document may be out of date.

What an insurer asks about an older home

This is the part that turns a five-minute phone call into a two-week problem.

Insurers underwrite an older home on the systems inside it. The questions are consistent, and a yes to any of them can produce a higher premium, a condition that the work be done first, or a refusal.

Electrical. Knob and tube wiring, common in homes built before roughly 1950, is a standard decline for many companies. Aluminum branch wiring, used widely in the late 1960s and 1970s, usually requires an electrician's inspection and approved connections at every outlet and switch. A 60 amp service is often too small for a modern home and many insurers want it upgraded.

Plumbing. Polybutylene supply piping, grey plastic pipe installed from the late 1970s into the mid 1990s, has a history of failures at the fittings. Galvanized steel pipe corrodes from the inside and restricts flow. Both raise water damage risk, which is the largest source of home claims.

The roof. Insurers ask its age and its material. A roof near the end of its expected life can mean actual cash value settlement instead of replacement cost, or a condition to replace it within a set period.

Oil tanks. An underground oil tank, buried or abandoned, is an environmental liability as much as an insurance one. Insurers ask whether one is present and whether one was ever removed. Confirming removal with documentation matters here.

Woodstoves and solid fuel appliances. These usually need a WETT inspection or equivalent proof that the installation meets code.

A home inspection will surface most of these before your subjects come off, which is one of the reasons to book one. Our BC home inspection checklist covers what the inspector looks at and how to confirm they are licensed.

Claim history follows the address

Insurers check claims by property as well as by person. If the previous owner made two water damage claims in five years, that record sits against the address.

You did not make those claims, and they can still make your policy harder to place or more expensive. This is not a dead end. It usually means the broker has to approach more than one company, and that takes days rather than hours.

Ask your broker to run the address as soon as you have it.

Replacement cost and actual cash value

Two ways a policy can settle a claim, and the difference shows up when you claim rather than when you buy.

Replacement cost pays what it costs to replace the item or rebuild the structure today.

Actual cash value pays that amount minus depreciation for age and wear. A twelve-year-old roof settled on actual cash value pays out a fraction of what a new roof costs.

Policies can apply one basis to the building and another to contents, and older components are where insurers most often push a policy toward actual cash value. Read which one applies to what before you bind.

The add-ons a standard policy leaves out

Three coverages people assume are included and usually are not.

Earthquake. Sold as a separate add-on with its own deductible, and that deductible is set as a percentage of the insured value rather than as a flat dollar figure. A percentage deductible means the amount you pay out of pocket rises with the value of what you are insuring. In this region that is a coverage to price rather than skip on assumption. Ask for the quote both ways and decide with the number in front of you.

Overland water. Water entering the home at ground level, from heavy rain or an overflowing watercourse. Availability depends on the specific property.

Sewer backup. Water and sewage coming back up through the drains. Older areas with combined sewers are where this comes up most.

The Insurance Bureau of Canada lists all three as optional coverages that a standard policy does not automatically include. Give the broker the address and let them tell you which apply.

The timeline that works

Start when your subjects are removed, not in the week of completion.

That gives the broker time to run the address, come back with the underwriting questions, and go to a second company if the first one declines. It gives you time to get an electrical inspection or an oil tank confirmation if one is needed.

The sequence looks like this:

1. Subject removal week. Call a broker with the address, the year built, and what you know about the roof, wiring, plumbing and heating. For a strata, send them the insurance certificate from the strata documents.
2. After the quote. Bind the policy effective on your completion date, and confirm the strata deductible limit against the certificate.
3. As soon as your lawyer has your lender's instructions. Get the exact legal name and mortgage number for the loss payee and send it to the broker.
4. Several days before completion. Confirm the binder has reached both your lawyer and your lender.

If you are buying without subjects, the insurance question moves in front of the offer rather than after it. That is one of the risks set out in what subject-free actually means.

What this comes down to

• Your lender releases mortgage funds only after it has a binder naming it as loss payee.
• Most lenders want that binder several days before completion, so confirm your lender's deadline early.
• A detached home policy insures the building. A strata owner policy covers improvements, contents, liability, loss assessment, and the strata deductible.
• BC strata deductibles commonly run $100,000 to $750,000 or higher, so check the limit on your quote against the strata's certificate.
• Insurers ask about knob and tube and aluminum wiring, 60 amp service, polybutylene and galvanized plumbing, roof age, oil tanks, and woodstoves.
• Claim history follows the address, including claims the seller made.
• Earthquake, overland water, and sewer backup are separate add-ons, and the earthquake deductible is a percentage of insured value.
• Start the conversation at subject removal.
• Contact our team if you want the insurance questions raised before you write, or browse listings.

Plan your next step

Work through strata review if you are buying a condo or townhome, because the insurance certificate and the deductible sit in the same package of documents you are already reading. The home-buying guide sets out where insurance falls in the order of a purchase.