What is Title Insurance and Why is it Important (by Jordan Lulich)
Updated: May 6, 2019
The median home value in the United States has increased by $16,000 over the last 12 months, according to data released by Zillow. But home values are not the only items enjoying growth. Title insurance, a $15 billion industry, is also forecasted to continue growing through 2020. It’s clear more homeowners are electing to choose title insurance, and you too should understand the fundamentals and importance of title insurance for your home purchase.
What is title insurance?
Traditional insurance policies protect insureds against future losses. For example, a car insurance policy will protect the driver from future accidents, and a health insurance policy will protect an insured from future health problems. However, title insurance is different because it protects insureds against claims for past occurrences.
Who does title insurance protect?
Two different types of title insurance exist. A real estate owner can choose to purchase title insurance and lenders can elect to do so as well. Lenders will require title insurance by mortgagors in order to secure their security interest in the property. Furthermore, a property owner will purchase title insurance to protect their investment in their property.
What type of protection does title insurance provide?
Title insurance will require an extensive title search of the property. This search will minimize the potential liability to the property owners by discovering any foreseeable title issues. However, once a property owner purchases and takes possession of a property, title insurance will defend against any litigation that challenges the validity and legality of the new property owner.
How much does title insurance cost?
Unlike traditional insurance companies where monthly payments are required, title insurance only requires a one-time payment. This insurance will vary according to the price on your home and according to the state that you will purchase a home. On average, a title insurance policy for a homeowner costs $834 and for the lender it will cost $544.
Is this expense really necessary?
The reality is that title insurance has protected a large amount of insureds, but it really hasn’t proportionality paid out that many claims. An estimated 4-5% of title insureds have been paid on their policy. However, these problems protected by the claims were unlikely to be detected by an ordinary purchaser. Only title insurance would protect the homeowner purchasers.
Common types of title insurance claims include:
Errors in the public recordUndiscovered LiensOmitted HeirsFraud
What specific claims does title insurance cover?
These claims include certain errors that were made in inputting information into the public record. A title examiner will assess the title by analyzing the chain of ownership of the house. They will insure that the property passed either by sale, through will, or maybe even in a gift to the correct and intended person. Additionally, a title check will insure there are no current legal claims against the house, including encumbrances such as liens, mortgages or any existence that makes the title not able to be transferred. Read more about specific title insurance claims here.
The short end is that a title policy protects that small group that has a problem. Title insurance is a valuable protection for home purchasers since this group really has no way of detecting the problem before it arises. To be safe, it it is worth to spend the average cost of $834 for title insurance.