What is Title Insurance?

Chances are you’ve never heard of title insurance. At least not until you’ve gone through the process of buying a house.

 

However, title insurance can be extremely beneficial for homeowners. This type of insurance can potentially save you a lot of money and protect you and your home.

 

If you’re a first-time buyer or a homeowner, it’s important to understand what title insurance is, how it works, and how you can find the perfect policy for you.

 

What is Title Insurance?

Essentially, title insurance is a type of indemnity insurance that protects you from any unknown claims being made against your home.

 

Common claims filed against a title include:

 

• Back taxes missed by the title company
• Conflicting wills
• Liens

 

In some cases, claims against a title could result in you losing your home. There are numerous scenarios in which a person could make a claim against your title, so it’s important to protect yourself against these claims.

 

Title insurance helps make sure that you, your family, and your home are protected in case someones makes one of these claims.

 

How Does Title Insurance Work?

In order to buy or sell a home, a clear title is a necessity. Before titles can be issued, they have to be checked for any outstanding liens or claims. Checking a title helps confirm that a party has legal ownership of a property.

 

If a title is not clean, then property owners and lenders are susceptible to damages and losses due to liens, claims, and ownership by another party. Whereas most insurance protects policyholders from potential future events, title insurance protects owners and lenders from past occurrences.

 

A basic policy will include coverage for:

 

• Flawed records
• Ownership by a different party
• Fraud
• Forgery
• Outstanding lawsuits or liens

 

Like any other type of insurance, you purchase title insurance as a preventative measure. While you may not end up needing it, it’s important to have this protection in place so that there are no surprises after purchasing your home.

 

Types of Title Insurance

There are only two main types of title insurance: owners’ insurance and lenders’ insurance.

 

Owners’ insurance is typically purchased by the seller of the home. This is used to protect the buyer against title defects, claims, and liens. Owners’ insurance is an optional measure. It is up to the buyer and seller to decide whether or not it is necessary.

 

Lenders, on the other hand, almost always require buyers to purchase lenders’ insurance. This helps lenders protect themselves in case the seller does not have the legal right to transfer the title to the buyer. Lenders’ insurance is a common closing cost that you’ll likely face when buying a home.

 

How to Purchase a Policy

You will typically only purchase title insurance during the closing of a real estate transaction. Sellers typically purchase owners’ insurance while buyers generally are responsible for lenders’ insurance. Unlike other types of insurance, title insurance requires a one-time, upfront payment.

 

Your lender will likely have a preferred insures. In which case, you may be better off going with this choice. However, buyers can purchase from whichever insurer they choose.

 

It’s important to research and compare coverage from different providers to find the best insurance policy possible for you and your lender.

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