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An introduction to title insurance

  • Cars Explained
  • Xavier Sabastian
  • 6 minutes

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An introduction to Title insurance

Title insurance is a type of indemnity insurance. This protects lenders and homebuyers against financial loss caused by faults in a property’s title. Lender’s title insurance is the most frequent type of title insurance, which the borrower acquires to protect the lender.

When you have a mortgage, title insurance will be one of your closing charges. The premium is one-time, and the policy safeguards the lender. You can also protect yourself by purchasing the owner’s insurance, but it’s not necessary. Here’s everything you need to know about title insurance, including what it covers, how much it costs, and if you should purchase the optional owner’s policy.

introduction to Title insurance

Basic points to remember

Lenders and buyers are protected from financial damage owing to faults in a property’s title. Back taxes, liens, and competing wills are the most typical claims filed against a title. A one-time pay for title insurance covers costly administrative expenditures for comprehensive searches of title records to defend against past occurrence claims.

Title insurance policy is your best line of defense against potential flaws that can remain concealed even after a comprehensive review of public records. A lender’s policy is also available to protect the interest of your mortgage lender. Any real estate transaction must have a clear title to ensure that the property is free of liens. A title insurance coverage will protect you against various dangers, including inaccurate records, wrong ownership, and fraudulent paperwork.

This will necessitate a thorough title search of the property. By identifying any foreseeable title concerns, this search will reduce the property owners’ possible responsibility. However, once a property owner purchases and takes possession of a property, title insurance will defend against any litigation that questions the new property owner’s validity and legality.

What does title insurance do?

Real estate transaction requires a legal title. Before a title can be given, title companies must search to see any claims or liens against it. A title search is a search of public documents to establish and confirm legal ownership of a property and see whether there are any claims against it. Erroneous surveys and unresolved building code violations are two examples of flaws that might tarnish the title.

title insurance

Unlike typical insurance, which covers claims for future events, the title insurance covers claims for past events. The following risks are commonly covered by a basic owner’s title insurance policy:

  • Another party’s ownership
  • Forgery and fraud, as well as incorrect signatures on papers
  • Records with flaws
  • Unrecorded easements, for example, are examples of restrictive covenants.
  • Outstanding lawsuits and liens are examples of encumbrances or judgments against the property.

Some private transactions might include a warranty of title instead of title insurance. This is an assurance from a seller to a buyer that the seller has the right to transfer ownership and that no one else has any rights to the property.

In contrast to regular insurance firms, which demand monthly payments, title insurance requires a one-time payment. This insurance may vary depending on the price of your home and the state in which you will buy a home. This insurance coverage costs an average of $840 for a homeowner and $552 for the lender.

Types of title insurance

Lender’s and owner’s title insurance are the two types of insurance (including extended policies). Almost all lenders demand that the borrower acquire a lender’s insurance coverage to protect the lender if the seller cannot transfer ownership rights lawfully. The policy of a lender solely protects the lender from loss.

The conclusion of a title search is indicated by the issuance of a policy, which provides some confidence to the buyer. Because title searches are not perfect and the owner is still in danger of financial loss, further protection in the form of an owner’s title insurance policy is required. Owner’s title insurance, which the seller frequently obtains to safeguard the buyer against title flaws, is an optional purchase.

Types of title insurance

How to buy this type of insurance

Following the completion of the property purchase agreement, an escrow or closing agency starts the insurance process. Fidelity National Financial, First American Title Insurance Company, Old Republic National Title Insurance Company, and Stewart Title Guaranty Company are the four biggest underwriters in the United States. You can also choose from several regional companies.

Owner’s title insurance costs anywhere from $500 to $3,500. This depends on where you reside, which insurance company you choose, and how much you paid for your house. Traditional insurance policies shield policyholders from prospective losses. This insurance policy is distinct in that it protects the insured against claims for past incidents.

The parties pay a one-time cost at the closing. The Real Estate Settlement Procedures Act (RESPA) forbids sellers from forcing the purchase from a certain company. Following the completion of the property purchase agreement, an escrow or closing agency starts the insurance process. The parties pay a one-time cost at the closing. Owner’s insurance costs anywhere from $500 to $3,500, depending on where you reside, which insurance company you choose, and how much you paid for your house.

While your lender, lawyer, or real estate agent may suggest a firm, you should always shop around.

Why this insurance is important?

Consider a homebuyer who finds the home of their dreams only to discover unpaid property taxes from the previous owner after closing. Without this insurance, the buyer bears the entire financial burden of this back tax claim. They must either pay the back taxes or risk losing their home to the taxing authority. In the same case, this insurance protects the buyer for as long as they own—or have an interest in—the property.

Similarly, this insurance provided by the lender protects banks and other mortgage lenders from unrecorded liens, unrecorded access rights, and other problems. If the borrower defaults, the lender will have to pay. This will also include any concerns with the property title.

Title insurance


Before making a purchase, real estate investors should check if the property has a bad title. Foreclosed homes, for example, may have a slew of unresolved difficulties. To protect themselves against unforeseen claims against the insurance, buyers might consider acquiring the owner’s insurance.

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