Title insurance is issued after a careful examination of the public records. Despite the knowledge and experience of professional title examiners, even the most thorough search cannot absolutely assure that no title faults are present. In addition to matters shown by public records, other title problems may exist that are not disclosed in a search. Title insurance eliminates risks and losses caused by faults in title from an event that occurred before you owned the property. Title insurance is different from other types of insurance in that it protects you, the insured, from a loss that may occur from matters or faults from the past. Other types of insurance, such as auto, life, or health insurance, cover you against losses that may occur in the future. Title insurance does not protect against future faults, but does protect you from risks or undiscovered interests. When you purchase a property, your lender will require that you pay for the lender’s title insurance policy. This policy protects the lender’s interest but does not protect your interest as the purchaser which is why owners title insurance is always recommended.
Title insurance is a one-time premium for a policy that remains effective until the property is sold to a new owner – even if that doesn’t occur for decades. Your owners title insurance policy protects you from financial loss if it turns out that someone else has a claim on your property – or if there are other problems with the title that were not disclosed during the sale. For example, if it turns out that the seller did not have the right to sell the property, or if there are outstanding liens against the property that you were not aware of, title insurance would cover your losses. Title insurance would also protect you in situations where the seller had been paid for the property, but did not actually own it – this is called a ‘title defect’.
There are two types of title insurance policies:
- Owner’s policy: An owner’s policy protects you, the purchaser, against a loss that may occur from a fault in the ownership or interest you have in the property. It also provides protection from financial loss due to demands that may be charged against the title to your home, up to the cost of the title policy. It will also cover the payment of any legal costs, or the payment of successful claims.
- Lender’s policy: A lender’s policy, also known as a loan policy or a mortgage policy, protects the lender against loss due to unknown title defects. It also protects the lender’s interest from certain matters which may exist, but may not be known at the time of the sale. This policy only protects the lender’s interest. It does not protect the purchaser. It is important to note that a title insurance policy only covers losses that arise from problems with the title – it does not cover other types of risks, such as damage to the property itself.
If you’re thinking about purchasing a property, make sure you understand all of the costs involved, including the cost of title insurance. It’s important to protect yourself from potential risks, and title insurance is one way to do that.
