What is Title Insurance and Why Do I Need It?

What is Title Insurance?

Title insurance is a type of indemnity that is provided for protection from any past problems with the property such as tax arrears, any kind of damages, or any individual illegally claiming ownership of property, etc. The primary purpose of this insurance is to ensure a smooth exchange of property between the buyer and seller, or the borrower and lender, in case of a mortgage.

How is Title Insurance Different?

Typical insurances such as health, life, car, etc. provide safety from the potential damages or incidents one may incur in the future. Whereas title insurance is paid for past events that could’ve taken place over property such as levies, etc. Typical insurance is paid on a monthly or annual basis while title insurance is paid as a one-time fee prior to final closing.

Types of Title Insurance and How Do They Work?

There are two types of title insurance, one for the buyer/borrower and the other one for the seller/lender of a particular property. They are known as owner’s title insurance and lender’s title insurance respectively. Both buyer and seller need to buy title insurance to be cautious about defects or liabilities. 

The owner’s policy provides a haven for the buyers or borrowers of the condominium or house from illegalities. This usually protects the homeowners from, flaws in the indenture, duplication of documents, hidden successors of property, etc. The owner’s policy is usually purchased at the end of the transaction. It is usually worth the property’s monetary value and is accounted for until the borrowers/buyers or their successors have some interest in the property.

The lender’s policy protects the lender or seller against loss from the transaction of property. It is commonly required at the issuance of the mortgage loan to the borrower, for assurance of no loss from the transaction. It does not provide any protection to the buyer. The policy’s amount diminishes annually while the mortgage is being paid and eventually ends when the entire amount of the mortgage is paid by the borrowers.

Who Pays for the Insurance?

For the lender’s policy, certainly, the lender or seller has to pay for the insurance. Meanwhile, the owner’s policy is paid by the borrowers since it protects them from liabilities and past fraud or errors and remains intact until the owners keep it in their possession.

Why Do You Need Title Insurance?

So the main question arises, should you buy title insurance while buying a cozy condominium or a fancy apartment, or any other property for living or investment purposes? You can decide for yourself by comparing if you’re willing to risk your hard-earned money. For buyers, it can account for any illegalities in the future, which would eventually keep the risk away of losing your property or having conflicts over it. It may seem like paying something for nothing, but as a potential investor or buyer, you never know what the property beholds while you’re risking your finances over it.

From the lender or seller’s point of view, title home insurance would keep losses away if the potential buyer bankrupts or fails to pay the mortgage of the property. If this does not seem to be a significant edge for you, or you’re perfectly aware of the financial conditions of the borrower, it may be your consideration to not go for it. But in the end, it's always your choice!