WHAT TITLE INSURANCE REALLY DOES

THE INS AND OUTS OF TITLE INSURANCE 

For most people, the first time they ever hear the term “title insurance” is when they are in the process of purchasing a home. They immediately believe that this insurance provides protection in case the family’s breadwinner dies, the property will be paid off with the insurance policy’s proceeds.

HERE’S WHAT TITLE INSURANCE REALLY DOES

Title insurance is a contract wherein the insurance company agrees to protect the insured party for losses resulting from clouds on title, claims, unknown liens and other title defects that occurred prior to settlement. Title defects include unpaid real estate taxes and assessments,forgery on a prior deed or an unknown heir of a prior owner who has an interest in the subject property. Title insurance is paid for only once and remains in force and gives protection against any defects which existed prior to the date of settlement.

TWO TYPES OF TITLE INSURANCE

There are two types of title insurance: owner’s title insurance and lender’s title insurance. When a homebuyer borrows money from a lender to consummate the purchase of the home, the lender will require that a lender’s title insurance policy be obtained. This policy will protect the interest of the lender up to the amount of the loan. Owner’s title insurance is optional. The homeowner can purchase a policy to protect his interest in the property. The amount of coverage in an owner’s policy is equal to the purchase price of the home.

THE DIFFERENCE BETWEEN TITLE INSURANCE AND OTHER TYPES OF INSURANCE

When an individual buys homeowner’s (fire and casualty), auto, health or life insurance, the purpose of the insurance is to protect against calamities which may occur in the future. Title insurance is the only type of insurance which protects against events which happened in the past, prior to the issuance of the policy. When a real estate contract is signed, a title search must be completed before settlement can occur. Title searches examine land records to determine if the home is encumbered by any mortgages or other liens, encroachments, rights of way and easements. Once these items are discovered in a title search, they can each be dealt with appropriately. In the event any of the foregoing were in existence prior to settlement and were missed during the title search or not dealt with properly, title insurance would step in and protect the homeowner and lender from loss.

Title insurance is a wise purchase for homeowners. For a one time premium a homeowner can have the peace of mind to know that the largest investment he will probably ever make is well protected.