Title insurance protects you from financial loss if someone challenges your ownership or if there are undiscovered liens, errors in public records or other title defects. Unlike other insurance that covers future events, title insurance covers past events that affect your ownership. There are two types: lender’s policy (required) protects the mortgage lender and owner’s policy (optional but recommended) protects you. Owner’s title insurance is a one-time premium averaging $1,000-$2,000 and lasts as long as you own the home.
What Is Title Insurance?
The Basic Concept
Title insurance protects against:
- Ownership disputes
- Unknown liens
- Errors in public records
- Fraud and forgery
- Missing heirs claiming ownership
- Undisclosed easements
How It Differs From Other Insurance
| Regular Insurance | Title Insurance |
|---|---|
| Covers future events | Covers past events |
| Recurring premiums | One-time premium |
| Claims are common | Claims are rare |
| Based on risk factors | Based on title search |
Why Title Issues Exist
Common causes:
- Errors in recording documents
- Unknown heirs
- Forged signatures
- Unpaid contractor liens
- Tax liens
- Boundary disputes
- Fraudulent prior transactions
Types of Title Insurance
Lender’s Title Insurance
What it is:
- Protects the mortgage lender
- Required by virtually all lenders
- Coverage equals loan amount
- Decreases as loan is paid down
- Expires when loan is paid off
Who pays:
- Buyer typically pays (varies by state/custom)
- Part of closing costs
Owner’s Title Insurance
What it is:
- Protects the homeowner
- Optional (but strongly recommended)
- Coverage equals purchase price
- Lasts as long as you own the property
- Protects your heirs if you leave them the property
Who pays:
- Varies by state and local custom
- Seller pays in some areas
- Buyer pays in others
- Negotiable
Coverage Comparison
| Feature | Lender’s Policy | Owner’s Policy |
|---|---|---|
| Who’s protected | Lender only | Property owner |
| Coverage amount | Loan amount | Purchase price |
| Duration | Until loan paid off | As long as you own |
| Required? | Yes | No (but recommended) |
| Typical cost | 0.5% of loan | 0.5-1% of price |
What Title Insurance Covers
Standard Coverage
Owner’s policy typically covers:
- Defects in title found after purchase
- Unknown liens or encumbrances
- Errors in public records
- Forged documents in chain of title
- Unknown heirs claiming ownership
- Improperly recorded documents
Extended Coverage
Enhanced policies may also cover:
- Zoning violations
- Building permit issues
- Boundary and survey issues
- Post-policy forgery
- Encroachments
- Living trusts
What Title Insurance Doesn’t Cover
Exclusions include:
- Issues you knew about before buying
- Government actions (zoning changes, eminent domain)
- Native American land claims
- Environmental issues
- Defects created after policy date
- Items in the policy exceptions
The Title Search Process
What Happens Before You Get Insurance
Title search includes:
- Examination of public records
- Chain of title review
- Lien search
- Judgment search
- Tax record review
- Divorce decree review (if applicable)
What Title Examiners Look For
| Issue | Where Found |
|---|---|
| Prior ownership | Deed records |
| Mortgages/liens | Recorder’s office |
| Judgments | Court records |
| Tax liens | Tax assessor |
| Easements | Recorded documents |
| Restrictions | HOA/deed records |
Title Commitment
Before closing, you receive:
- Preliminary title report or commitment
- Shows current ownership
- Lists any exceptions (items not covered)
- Identifies requirements to clear title
Title Insurance Costs
Typical Prices
| Coverage Type | Typical Cost |
|---|---|
| Lender’s policy | 0.5% of loan amount |
| Owner’s policy | 0.5-1% of purchase price |
| Simultaneous issue discount | 10-40% off second policy |
Cost Examples
$400,000 home, $360,000 loan:
- Lender’s policy: ~$1,800
- Owner’s policy: ~$2,000-$3,200
- With simultaneous discount: ~$2,800-$3,800 total
Factors Affecting Cost
Price varies by:
- Property value
- State regulations (some states regulate rates)
- Title company
- Enhanced vs standard coverage
- Whether buying both policies together
State Rate Variations
| State | Rate Structure |
|---|---|
| Texas | State-regulated, uniform |
| Florida | State-regulated |
| California | Competitive, varies |
| New York | Varies by county |
Who Pays for Title Insurance?
Varies by Location
| Area | Typical Custom |
|---|---|
| California | Varies by county |
| Texas | Seller pays owner’s, buyer pays lender’s |
| New York | Buyer typically pays both |
| Florida | Varies by county |
Negotiable
Regardless of custom:
- Can be negotiated
- Part of overall deal
- Include in offer if you want seller to pay
Title Insurance Claims
Common Claim Types
| Claim Type | Example |
|---|---|
| Unknown liens | Unpaid contractor lien surfaces |
| Forgery | Prior deed was forged |
| Errors | Recording mistake in legal description |
| Unknown heirs | Heir not included in estate sale |
| Boundary disputes | Survey shows encroachment |
What Happens With a Claim
If a covered issue arises:
- You file a claim with title company
- Company investigates
- If covered, company defends you legally
- Company pays losses up to policy amount
- May negotiate settlements
Claims Are Rare
Why:
- Thorough title search catches most issues
- Most problems cleared before closing
- Title insurance is profitable because claims are infrequent
Choosing a Title Company
Who Selects the Title Company
Varies by location:
- Buyer chooses in some areas
- Seller chooses in others
- Lender may have requirements
- Real estate agent may recommend
What to Consider
When you have a choice:
- Compare prices (where rates aren’t regulated)
- Check reviews and reputation
- Ask about experience
- Consider convenience of location
- Ask about closing timeline
Questions to Ask
- What’s the total cost for both policies?
- What’s included in the search?
- Do you offer enhanced coverage?
- How long until closing?
- What are your customer reviews?
Enhanced Title Insurance
What It Is
Enhanced or extended coverage provides more protection than standard policies:
- Additional covered risks
- Higher coverage limits
- Post-policy coverage
Additional Coverages May Include
- Building permit violations
- Zoning violations
- Encroachments
- Access issues
- Boundary disputes
- Living trust issues
- Inflation protection
Cost Difference
Enhanced policies cost:
- 10-20% more than standard
- Worth considering for valuable properties
- May include automatic inflation protection
Title Insurance for Refinancing
When Refinancing
New lender’s policy required:
- Every refinance needs new lender’s policy
- Your original lender’s policy expired with old loan
- Owner’s policy remains in effect
Potential Savings
Reissue rate:
- If refinance with same title company
- Or within certain time period
- May get discounted rate
How to get it:
- Provide prior policy
- Ask about reissue rate
- Can save 10-40%
Common Title Issues and Solutions
Before Closing
| Issue | Solution |
|---|---|
| Outstanding lien | Pay off at closing |
| Judgment against seller | Satisfy before transfer |
| Missing signatures | Get proper documents signed |
| Boundary encroachment | Survey, negotiate, insure around |
| Tax lien | Pay from sale proceeds |
After Closing (Why You Need Insurance)
| Issue | Insurance Response |
|---|---|
| Unknown heir claims ownership | Defends title, pays if lost |
| Forged prior deed discovered | Pays to clear title or loss |
| Recording error surfaces | Corrects or compensates |
| Hidden lien appears | Pays the lien |
Should You Get Owner’s Title Insurance?
Arguments For
Protection:
- Covers legal defense costs
- Pays financial losses
- Protects your equity
- One-time cost
Value:
- Relatively inexpensive
- Lifetime coverage
- Protects your largest asset
- Peace of mind
Arguments Against
Risk is low:
- Title search catches most issues
- Claims are rare
- May feel like unnecessary cost
The Bottom Line
For most buyers:
- Owner’s policy is worth it
- Cost is small relative to home value
- Protection is valuable
- One-time expense
Frequently Asked Questions
What is title insurance?
Insurance that protects against financial loss from defects in the title to your property—things like unknown liens, errors in public records, fraud or ownership disputes from before you bought.
Do I need title insurance?
Lender’s title insurance is required for your mortgage. Owner’s title insurance is optional but strongly recommended to protect your equity in the property.
How much does title insurance cost?
Typically 0.5-1% of the purchase price for owner’s policy, plus 0.5% of loan amount for lender’s policy. On a $400,000 home, expect $2,000-$4,000 total. Rates vary by state.
Is title insurance a one-time payment?
Yes. Unlike other insurance, title insurance is paid once at closing and covers you for as long as you own the property (for owner’s policy) or until the loan is paid off (for lender’s policy).
Who pays for title insurance?
Varies by location and custom. Can be buyer, seller or split. Often negotiable as part of the overall deal.
What does title insurance cover?
Ownership disputes, unknown liens, errors in public records, forged documents in the chain of title, unknown heirs and similar issues that affect your right to own the property.
How long does title insurance last?
Owner’s policy: As long as you own the property (and may cover your heirs). Lender’s policy: Until the mortgage is paid off.
Can I shop for title insurance?
In many states, yes. Rates are competitive in some areas. In regulated states, rates are set. You can always compare services even if rates are similar.
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Sarah Mitchell
Licensed Mortgage Broker, 15+ Years Experience
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