What is title insurance?

Title insurance is assurance that the title on a property is clean. It is purchased by the buyer of a property prior to the closing.

If the buyer is borrowing money for the purchase, the lender purchases title insurance for the mortgage amount. The buyer purchases title insurance directly from the insurance company if no lender is involved.

A title insurance company provides the insurance, insuring the buyer against any prior liens or other matters affecting the title so the buyer is protected. If any issue should arise from the original property owner, the burden falls on the insurance company to resolve the matter, up to the dollar amount value stated in the policy.

Read on to learn about the important things to understand about title insurance before purchasing:

• History of Title Insurance
• Why do I need Title Insurance?
• Types of Title Insurance
• How Do I Select a Title Insurance Company?

History of Title Insurance

In most countries, land ownership and transfer of property was overseen by the government through a system of land registration. It is the government that verifies a clean title, not an insurance company.

With the absence of a governmental land registration in the United States, there were cases where the buyer of property later lost the property due to an unknown lien against the seller. As a result, the first title insurance company was formed in 1876 to protect buyers.

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Why Do I Need Title Insurance?

There are a number of potential problems related to the title, against which the owner is insuring themselves:

• Title defects
• Property lien
• Discrepancy in prior transfer of ownership
• Building permit violations

Because of these many possibilities, it is important for a title company to review the records of the property to verify a clean chain of title.

Types of Title Insurance

There are two types of Title Insurance:

• Owner’s Policy
• Lender’s Policy

The owner’s title insurance policy will be based on the market value of the property at the time of purchase; usually the purchase amount. This policy covers any damages or loss the owner incurs as a result of defects on the title. The policy is a guarantee for the owner that the title is free of any defects.

The lender’s title insurance policy is based on the amount of the mortgage, not the full purchase amount. It protects the lender from any losses up to that dollar amount.

How Do I Select a Title Insurance Company?

Lenders usually pick their own title insurance company, but it is unlawful for them to tell the owner which company the owner must use.

Property ownership is a very valuable investment and careful consideration of proper insurance from a reliable company is important.

When selecting a title insurance company, it is important to do plenty of research on the reliability of a company and compare free quotes from as many companies as possible.

You can start your research here and compare free quotes from a variety of title insurance companies by entering your zip code on this page!