Protect your investment with title insurance

Title insurance is an important protection when purchasing property in the United States. That’s why it’s important to understand what it is and why you need it.

Title insurance protects your purchase

Simply put, title insurance protects your investment. It works like any other type of coverage by protecting you from the unexpected. In this case, it protects against unexpected claims or liens that occurred before you took possession.

Before closing on the purchase, a real estate title company will conduct a search to ensure the property is clear of liens. This takes place after you have provided your escrow funds to the escrow holder. Escrow funds may be held by the agency, if they provide that service.

Everything found during the search is summarized and included in the policy. Usually, if anything is found, the seller is asked to rectify it before the purchase is allowed, but things may be missed or never appear during the search. That’s where this insurance comes in to provide you with protection. If a claim arises prior to your purchase, this coverage will protect you from damages for loss as a result of that claim.

This is different from almost any other type of coverage. It protects it from unseen events that occurred before it was removed. A policy will terminate on the date it was issued and will extend back in time indefinitely. You only pay it once. Property or life coverage, on the other hand, protects you from unknown future events and is paid annually.

Lender vs. Owner Policies

Title insurance is required for almost all buyers. If you are taking out a mortgage, the lender will require you to purchase a lender’s policy. This policy covers the mortgage provider for the cost of the mortgage. Although the buyer generally pays for the Lender’s Policy, it does not cover the buyer. For that, the buyer will need a separate coverage, the Owner’s Policy.

These policies are indemnity policies that protect against loss. Therefore, the Lender’s Policy protects against the lender’s loss while the Owner’s Policy protects the owner against loss. The owner will want his coverage to be for the full value of the property, not just the amount of the mortgage.

All of this begs the question, “If a search has been done and it comes back clean, why do I need this coverage?” In addition to being required by the lender, title insurance means peace of mind and protection. Without it, there is a good chance that any claim against the real estate will result in some type of loss to the current owner. With it, the owner is protected against these claims. For anyone making a real estate investment, it’s a small price to pay for this peace of mind.