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What is Title Insurance and is it Really Necessary?
Although Owner’s Title insurance is optional and it may be tempting for a buyer to save wherever possible, this is not an area to cut expenses. Title Insurance protects the purchasers and owners against loss resulting from unforeseen defects in the title to real estate. The insurance policy is typically issued in the amount of the real estate purchase price and remains in effect for as long as the owner, or their heirs, retains an interest in the property.
Here are a few examples for you:
Did you know Abraham Lincoln Lost His home twice?
Or how about The Great Flamingo Invasion?
Also unlike other types of insurance, the purchase of an owner's title insurance policy is a one-time event; there are no future premiums to pay as long as you or your heirs hold an interest in the property. That means this fee, generally paid when you purchase the property, will protect you and your family indefinitely for so long as you hold an interest in the property.
That said, if you refinance your home, your lender will likely require you to purchase a new loan policy, as this type of insurance protects the lending institution only for the life of the loan. Your owner's policy, however, will remain effective.
There are two types of title insurance: owner's title insurance, called an Owner’s Policy, and lender’s title insurance, called a Loan Policy. Most lenders require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender's interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases as you pay down your loan and eventually disappears as the loan is paid off.
An Owner's Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you have an interest in the property. Only an Owner's Policy protects the buyer should a covered title problem arise. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
An Owner's Policy provides assurance that your title insurance company will stand behind you—monetarily and with legal defense if needed—if a covered title problem arises after you buy your home.
Because it is a highly regulated industry, title insurance policy types and costs will vary from state to state. You can check with your state's Department of Insurance for more information on pricing regulations. In general, each policy price is based on the purchase amount of the home (for an owner's policy) or the total amount of the loan (for a loan policy).