What is title insurance, and how can it help?

Victor Polich
Posted by Victor Polich
Mortgage Banking

While you’re probably already aware of insurance that can protect your home against fire, floods, theft, and vandalism, there’s a less well-known—but equally important—policy that’s designed to protect your property from future title challenges. It’s called title insurance.

Man in living room standing at a large window, looking out at a bright, tree-filled landscape.“Title” is a legal term used to describe the legal relationship between persons and property. The holder of the title has the right to use the property as desired and legally allowed.

With title insurance, you’re getting an assurance that you really own the property. The protection you’re buying is based on a title search of public records that traces the chain of ownership of the property you’re buying, and includes a guarantee from the title company that the title is accurate as stated.

The title search involves a professional searching the public records—going back many years—looking for any problems with the home’s title. Many issues revealed by a search can be remedied by professionals before you proceed to closing.

Owner’s title insurance

There are two types of title insurance policies that you should be aware of: owner’s title insurance and lender’s title insurance. With owner’s title insurance, the policy is issued in the amount of the property purchase. It is obtained for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property.

With this policy, you’re fully protected against a covered title problem not discovered during the title search. An owner’s policy provides assurance that your title company will stand behind you—monetarily and with a possible legal defense—if a covered legal title problem arises after you buy your home. Possible hidden title problems can include errors or omissions in deeds, forgery, undisclosed heirs, and mistakes in examining records.

Lender’s title insurance

The second type is lender’s title insurance. Also known as a loan policy, this protects your lender against problems with the title of your property that occur before the date of the policy. Keep in mind this policy protects your property but does not protect your personal interest in the property.

Remember, the time to buy title insurance is when you purchase a property. Be sure to shop around for the lowest price and the best policy. Also, ask title companies for their rate schedules, since most companies will attempt to beat the competition to win your business.

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