What is Title Insurance? What Does it Protect Against?
Title insurance is perhaps one of the most misunderstood of all types of insurance. While property and casualty policies (homeowners, auto, life) insure you for events that may happen in the future, title insurance insures you against events that may have happened in the past. Title insurance guarantees the policy holder (you, the individual, or the lender who holds a mortgage on property) marketable title. In other words, if you have title insurance, you are insured that your property can be conveyed to another without defects or encumbrances.
Additionally, title insurance protects the policy holder from claims against the properties from others. For example, if a neighbor claims he owns part of your property and decides to sue you to that effect, your title policy will pay to defend that claim up to the amount of your policy.
Do I Need Title Insurance if I’ve Had a Title Search?
Many consumers erroneously believe that if a thorough title search is conducted on a piece of property then title insurance is not needed. The purpose of title insurance, however, is not to insure one for known defects but to insure for unknown defects. Unknown defects can include forgeries, fraud, improper court proceedings, missing heirs, recording mistakes, and numerous other potential title defects that could be next to impossible to uncover during an extensive title search.
How Much Does Title Insurance Cost?
The cost of title insurance is relatively inexpensive, compared with the amount of coverage granted to the insured. While title claims are rare, they tend to be very large monetarily due to the value of the underlying real estate. Also, the premium for title insurance is only paid once, and will protect the owner for as long as he or she owns the property, and in some cases longer.
Lenders almost universally require that a loan policy be purchased to protect their interest. If both the owner’s and the loan policy are purchased simultaneously at the time of closing, the cost of the required loan policy is issued at a much reduced rate. Title insurance rates in most states are set by the state’s Department of Insurance, the state agency charged with regulating title companies.