What Is Title Insurance And Do I Need It

Title insurance isn’t often considered until you get to the closing table. At that point, it can seem like just another expense on a long list of costs and fees, and it's natural to question its value. 

Here’s what you need to know about title insurance:  What it is,  what it covers, how much it costs, and more.

What Is It

Title insurance is an insurance policy on the title to the home you are buying. 

Before we move forward, let’s take a step back - What is the title? The title to a house is the legal ownership of the property, transfers of title are documented on deeds which are recorded in land records. This means that when you go to buy a home, there is a documented history of legal ownership. Title insurance in it’s simplest form, is protection that your right of ownership and the financial value of the property are protected.

What It Covers

Title insurance offers protection from issues that could arise regarding the ownership of a property. If someone were to claim that they are the rightful owner of the property or that they were at some point in history, they could come forward and make a title claim. 

Title insurance also protects against liens, easements, and encumbrances - these would be cases in which someone else has the right to claim financial interest, compensation or use of the property in some way. 

Why Is It Needed

When purchasing a home a title search is done to determine the chain of title or history of ownership, liens, and other legal matters that have had an impact on the property over time. Title searches are good but they are not perfect. They won’t find unrecorded deeds, be able to catch fraud in past transactions, and a variety of other situations. This is why title insurance is needed.

Two types of Title Insurance

There are 2 types of title insurance, both do the same thing but protect different people.

• A mortgage lender requires title insurance to protect itself against title claims. Since the property is collateral for the mortgage, the lender won’t lend money for the purchase without this protection. 
• Owners title insurance protects the owner of the property. If someone comes forward to make a claim of ownership, they will be going to the current property owner, not the lender. 

Should you purchase title insurance?

A large majority of buyers purchase title insurance, in fact, I’ve never had a client not once they learned about the benefits and risks. The question really comes down to a cost vs risk analysis.