Lender's vs Owner's Title Insurance in Quebec: Which Policy Protects You?

When buying a home, many buyers learn that title insurance is part of the file and conclude that they are covered. That is only true if the policy on file names them. Title insurance comes as two separate policies, and they do not protect the same person. This article deals only with that distinction, drawing on nesto's page explaining what title insurance is. For title insurance in general, see our guide to title insurance in Quebec.

Lender's policy vs owner's policy: two different insureds

In practice, “title insurance” refers to two distinct contracts: the lender's policy and the owner's policy. They share the same generic name, they cover the same kind of risk, a defect affecting title to the property, and they arise in the same transaction. That is why they get confused.

Only one question tells them apart: who is the insured? An insurance policy pays the person it names, not the person living in the house or the person who signed the deed of sale. Until that question has a written answer, knowing that “there is title insurance” says nothing about your own protection.

What a lender's title policy covers, and for whom

nesto describes it plainly: most lenders require this mandatory policy, and this type of policy protects the lender's interests. As for its scope, the lender's policy covers the lender's investment up to the amount of the mortgage.

Two things follow. The beneficiary is the lender. The limit is the mortgage amount, not the purchase price. The policy is built around the loan: it protects the money the lender advanced, to the extent it advanced it.

The fact that it is required for your financing, and that it shows up in your purchase file, does not make it yours. It is tied to your transaction; it is not written in your name.

What an owner's title policy covers

The second policy is aimed at the buyer. According to nesto, the owner's policy covers the owner of the property. Its reference amount is the price paid, not the debt owed to the lender.

It is not imposed. nesto puts it this way: the policy is optional, but strongly recommended. That optional nature is exactly what creates the risk: a file can close normally, with proper title insurance in place, without any policy naming the buyer.

If only the lender's policy is issued

Take the case where only the lender's policy was issued and a title defect surfaces after closing. The policy responds, but it responds for what it covers: the lender's interest, up to the mortgage amount.

The owner has no coverage of their own. No policy names them, so they have no insurer to turn to for their own loss. Their down payment, the part of the price they paid without borrowing, is not covered by any policy in their name.

That is the whole mechanism: two parties hold an interest in the same property, and only one of them is insured. Nothing about it is unusual or anyone's fault; it simply follows from one policy being required and the other not.

It also explains why the gap usually goes unnoticed until something goes wrong. At closing, everything looks in order: the lender's condition is met, the file is complete, and the words title insurance appear in the documents. The difference between being part of an insured transaction and being an insured person only becomes visible on the day a claim has to be made, which is precisely when it is too late to change it.

How long owner's title insurance lasts

The two policies are not defined by the same thing. The lender's policy is defined by the loan: its limit is the mortgage amount. The owner's policy is defined by the ownership itself.

According to nesto, it protects the owner for as long as they own the property and can even be passed on to their heirs. It is paid through a one-time premium at closing, with no annual renewal to keep track of.

Transfer to heirs is a possibility nesto describes, not a universal rule: the exact conditions are in the wording of the policy actually issued. That is one more reason to get a copy and keep it with your deed of sale.

Questions to ask your notary before closing

Which policies are in the file? The answer you want is not “yes, there is title insurance” but the list: the lender's policy alone, or the lender's policy and an owner's policy.

Who is named as the insured on each one? This is the decisive question. On the owner's policy, check that your name appears, along with each buyer's name if you are buying together.

Does the owner's policy amount match the price paid? A policy set at the loan amount would reproduce the limit of the lender's policy.

Which insurer issues the policy? The main title insurers active in Quebec are FCT (First Canadian Title) and Stewart Title. The issuer's name tells you who to contact the day a defect appears.

What does the wording say about transfer to heirs? If that point matters to you, have it confirmed in writing rather than assuming it.

When the decision has to be made

An owner's policy is issued at closing, for a one-time premium. The question therefore comes up before signing at the notary's office, not afterward: that is when the file is open, when the policies are ordered, and when you can still ask for a policy in your name to be added.

If you keep one thing from this article: title insurance on file only protects you if a policy names you. The lender's policy protects the lender, and it does that job well. Your own protection is a separate, optional policy, and checking that it exists is up to you.