What is title insurance?

How title insurance works

The title is the legal right of ownership to a property (the deed is the legal document that evidences and transfers that ownership). Lenders require a title search on a property before closing.

Even though a title search company conducts thorough research of any legal ownership claims on the property, title insurance adds another layer of security. It gives you and the lender financial protection should an issue arise later concerning ownership.

For example, the heir of a past owner could try to claim ownership of the property years after you’ve bought the home. This situation could take months to resolve in court — having an insurance policy can help you pay for the legal fees. According to the American Land Title Association (ALTA), the title industry paid $162.5 million in claims during the first three months of 2025.

Title insurance vs. home insurance

It’s important to note that title insurance is different from homeowners insurance. Title insurance only covers issues with the title. It doesn’t cover damage to the home's physical structure or personal items lost during a covered event. You’ll have to purchase homeowners insurance separately.

» MORE: Homebuying checklist

Common title defects and issues

Even thorough title searches can miss critical defects that threaten your property ownership. Here are the most frequent title problems that can cost homeowners thousands:

• Outstanding liens: Unpaid contractor bills, tax debts or judgments
• Boundary disputes: Unclear property lines may require expensive surveys and legal fees
• Forgery or fraud: Invalid signatures on past deeds can void your ownership entirely, potentially losing your entire investment
• Missing heirs: Unknown relatives of previous owners can claim partial ownership, forcing costly legal battles
• Recording errors: Clerical mistakes in public records may cloud your title, requiring thousands in legal fees to correct
• Undisclosed easements: Hidden rights-of-way can limit property use and reduce home value by 10% to 20%

What does title insurance cover?

Title insurance protects homebuyers and lenders from financial losses caused by past title defects that surface after purchase. Unlike other insurance policies that protect against future events, title insurance covers issues that existed before you bought the property but weren't discovered during the initial title search.

Title insurance covers the following:

• Past ownership disputes: Claims from previous owners or their heirs
• Legal fees and court costs: Defense against covered title challenges
• Financial losses: Up to the full policy amount if a claim is valid
• Fraudulent documents: Forged deeds or invalid transfers in the property's history
• Recording errors: Mistakes in public records affecting your ownership
• Undisclosed liens: Previous debts attached to the property

Title insurance doesn't protect against future issues like new liens, zoning changes or physical property damage. Coverage is limited to preexisting title defects.

If a covered title issue arises, contact your title insurance company immediately. They'll investigate the claim and either resolve the issue legally or compensate you for covered losses. Most claims are resolved without going to court.

Types of title insurance

There are two types of title insurance: lender’s and owner’s. As their names suggest, lender’s title insurance protects your mortgage lender, while owner’s title insurance protects you, the homebuyer. Here are the details and requirements of both:

Lender’s title insurance

Lender’s title insurance is mandatory — you can’t get a mortgage without it. It protects the lender's financial interest in the property. In the event of title problems or ownership disputes, lender's title insurance ensures the lender is reimbursed for the amount owed.

Owner’s title insurance

Owner’s title insurance is optional. It covers the homebuyer and protects them if someone sues for a claim that occurred before they bought the home. For instance, a contractor may try to sue the new homeowner for a previous owner's unpaid balance for work done.

Do I need title insurance?

Owner's title insurance is strongly recommended. While not legally required like lender’s title insurance, skipping owner's coverage leaves you personally vulnerable to potentially devastating financial losses. Without it, you're responsible for all legal fees and financial damages if title problems surface after closing.

If someone successfully challenges your ownership, you could lose your home entirely or face tens of thousands in legal costs. Title fraud claims alone average $143,000, according to a Milliman analysis that studied over 127,000 claims associated with policies issued between 2013 and 2022.

For most homebuyers, especially those purchasing their primary residence, owner's title insurance offers essential peace of mind for your family's largest investment. Some states offer reduced rates for simultaneous lender's and owner's policies, making owner's coverage more affordable when purchased together.

How to buy title insurance

When it comes to buying title insurance, it is one of the closing costs that you can shop around for to get the best price. To start, find a reputable title insurance company; your lender might have a preferred company it works with.

As you conduct your research, look for the credentials of each title company you’re considering — some scammers pose as real companies and try to steal your hard-earned money. The ALTA can provide resources for your search, or you can check with your state’s insurance department to verify the legitimacy of local title search companies.

The title company will guide you through the process, letting you know which documentation about the property you need. Most companies will ask for the address, legal description and any relevant documents related to the title. With this information, the title insurance company will then conduct a thorough title search to uncover any potential issues or claims against the property.

Based on the results of the title search, the company will issue a title insurance policy to protect you against any future claims or disputes related to the property's ownership. It's important to carefully review the policy and ask any questions you may have before finalizing the purchase.

Who pays for title insurance?

Traditionally, the seller pays for the owner's title insurance policy as part of closing costs, while the buyer pays for the lender's policy required by their mortgage company.

However, regional customs differ significantly. In some areas, like Pennsylvania and Delaware, buyers typically cover both policies. In others, like California, payment practices vary by county. Local real estate customs, market conditions and negotiating power all influence who ultimately pays.

During your home purchase negotiations, you can request that the seller cover the owner's title insurance costs. In competitive markets, buyers may need to cover these expenses themselves, but in buyer's markets, sellers often pay as an incentive to close the deal.

Title insurance cost

Title insurance isn’t a recurring cost like most other insurance premiums — it's a one-time payment made during the closing process. Typically, the buyer pays for the lender’s title policy, and the buyer or seller may pay for the owner’s title policy.

“Title insurance fees are regulated by most of our states but typically range from 0.5% to 1% of the home's purchase price,” said Melissa Cohn, regional vice president at William Raveis Mortgage. “While the title insurance fees are typically not negotiable, there are other title costs, such as endorsements and other miscellaneous expenses, that can be negotiated.”

» MORE: How much are closing costs?