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Title insurance protects property owners and lenders against financial loss from defects in title. Unlike other insurance that protects against future events, title insurance protects against problems that already exist but haven’t been discovered. A one-time premium is paid at closing. Coverage lasts as long as the owner or their heirs hold interest in the property.

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Why Title Insurance Exists

Property ownership is established through a chain of recorded documents stretching back decades. Each transfer, mortgage, lien release, and legal action must be properly executed and recorded. Errors happen:
  • Signatures forged on previous deeds
  • Heirs not properly notified during estate transfers
  • Liens filed but never released after payment
  • Clerical errors in legal descriptions
  • Fraudulent transfers in the ownership chain
Title examiners research public records to find these issues before closing. Title insurance provides financial protection when problems are missed or undiscoverable.

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Two Types of Policies

Lender's Policy

  • Protects the lender’s loan amount
  • Required for financed purchases
  • Coverage decreases as loan is paid
  • Expires when loan is paid off or refinanced
  • Does not protect the owner

Owner's Policy

  • Protects the owner’s equity and ownership rights
  • Optional but recommended
  • Coverage remains at purchase price
  • Lasts as long as owner or heirs hold interest
  • Separate premium from lender’s policy
A lender’s policy does not protect the property owner. It only protects the lender’s investment. Without an owner’s policy, legal defense costs and financial losses from title defects are the owner’s responsibility.

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What Title Insurance Covers

Standard coverage includes:
  • Forged documents in the chain of title
  • Undisclosed heirs claiming ownership
  • Errors in public records
  • Mistakes in legal descriptions
  • Undiscovered liens or judgments
  • Improperly recorded documents
  • Fraud in previous transfers
When a covered claim arises, title insurance pays for:
  • Legal defense costs
  • Settlement of valid claims
  • Loss of property value
  • Loss of the property itself (in extreme cases)

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What Title Insurance Does Not Cover

Standard policies exclude:
  • Issues known before purchase
  • Problems created by the owner after purchase
  • Environmental hazards
  • Zoning violations (unless enhanced coverage)
  • Boundary disputes visible from survey or inspection
  • Government actions (condemnation, regulation changes)
  • Native American land claims (in some areas)
Read policy exclusions carefully. Some exclusions can be removed through endorsements for additional premium.

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Enhanced Coverage

Enhanced (or extended) policies provide broader protection beyond standard coverage. Additional coverage may include:
  • Building permit violations by previous owners
  • Zoning violations existing at purchase
  • Encroachments onto neighboring property
  • Unrecorded easements
  • Post-policy forgery
  • Boundary wall and fence disputes
  • Subdivision map violations
  • Living trust coverage
Cost: Typically 10-20% more than standard policies. Who should consider enhanced coverage:
  • Older homes with multiple previous owners
  • Properties with additions or renovations
  • Locations with frequent boundary disputes
  • Properties with complex ownership history

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How Claims Work

If a title issue arises after closing:
1

Report the claim

Contact the title insurance company (the underwriter, not the local title company that issued the policy). Provide documentation of the issue.
2

Investigation

The insurer investigates the claim, reviews the original title search, and determines coverage.
3

Defense or settlement

If covered, the insurer provides legal defense or negotiates settlement. The insurer pays covered costs up to policy limits.
4

Resolution

Claims may be resolved through legal action, negotiated settlement, or payment for loss of value.
Claims are relatively rare but can be significant when they occur. Keep the owner’s policy in a safe place permanently.

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Cost

Title insurance is a one-time premium paid at closing. Rates vary by state, property value, and coverage type. Typical range: 0.5% to 1% of purchase price What affects cost:
  • Purchase price (higher value = higher premium)
  • State regulations (some states regulate rates)
  • Coverage type (standard vs enhanced)
  • Loan amount (affects lender’s policy premium)
  • Reissue rates (discounts if prior policy exists)
Ask about reissue or refinance rates. If the property has an existing title policy from a recent transaction, discounts may apply.

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Questions to Ask

“What does your standard owner’s policy cover?” Coverage varies by underwriter. Understand what’s included before deciding on enhanced coverage. “What endorsements do you recommend for this property?” Some properties benefit from specific endorsements based on age, location, or history. “Is enhanced coverage available and what does it add?” Compare standard and enhanced coverage to determine if additional protection is worth the cost. “What’s your claims process?” Understand how to file a claim and expected response times.

Next: Title Ownership Options

How to hold title, deed types, and ownership structures

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