What is title insurance?

Secure your homeownership with this indemnity

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Whether you purchase a house, condo or vacant land, transferring the title is essential to gain legal ownership of the property. However, there may be hidden issues or claims on the title that could threaten your ownership and investment.

Title insurance is an insurance policy that protects both homebuyers and lenders if there are property title issues.

Key insights

  • Title insurance offers protection against hidden defects, liens, encumbrances or undisclosed ownership interests.
  • It safeguards your ownership rights and provides financial protection in the event of a title claim, covering legal fees and potential losses.
  • Your title insurance policy remains in effect for as long as you own the property.

How title insurance works

The title is a legal document that shows the ownership record of a property. 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, the title insurance industry paid more than $596.1 million in claims in 2022.

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

Types of title insurance

There are two types of title insurance available for purchase:

  • Lender’s title insurance, which is mandatory. 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, which 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.

Both owner's and lender's title insurance should be purchased to protect against potential financial harm caused by title-related issues.

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 American Land Title Association 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.

Title insurance cost

“Title insurance fees are regulated by most of our states but typically range from 0.50% 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.”

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.

» MORE: How much are closing costs?

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    Do I need title insurance if I'm buying a newly constructed home?

    Yes, even for newly constructed homes, title insurance is crucial. It protects you from any title defects or issues that may have occurred during the construction process, such as unpaid subcontractors, unresolved easements or fraudulent deeds.

    How long does title insurance coverage last?

    Title insurance coverage lasts for as long as you own the property. It provides protection against covered risks that existed before the policy's effective date. It's a one-time investment that can offer lifetime protection and potential savings in case of any future title claims.

    Can I transfer my title insurance policy to a new owner if I sell the property?

    No, title insurance policies are generally not transferable to new owners. Each buyer typically needs to obtain their own title insurance policy to ensure they are protected from potential title issues. This helps provide specific coverage tailored to the new owner's circumstances and protects their investment in the property.

    Bottom line

    Title insurance gives you financial protection and peace of mind regarding the ownership of your property. If you take out a home loan, you’ll likely be required to purchase lender’s title insurance to cover your mortgage lender, but you should also purchase owner’s title insurance for yourself. Issues with the title could appear long after you’ve moved into your home; as long as you have title insurance, you’re financially safe.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. American Land Title Association, " ALTA Reports Full-Year, Q4 2022 Title Insurance Premium Volume ." Accessed June 5, 2023.
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