Title insurance is the application of the general principles of insurance to
real estate titles. But, unlike other types of insurance which protect the insured
against loss due to unexpected future events, title insurance protects against
loss which may occur due to events that took place in the past. Specifically,
title insurance protects the buyer against loss resulting from previously unreported
land title defects insured against, such as forgeries, claims by missing heirs,
recording errors, etc.
What are the principal features of title insurance?
If a future claim against the title to real property results either in the loss
of title to the property, or expenses to clear up title defects uncovered by
such claims, title insurance will provide compensation up to the face amount
of the policy.
2. Legal defense:
Should a future claim against the title to property require legal defense, the
Title Company will work with the insured to provide for legal defense of the
title and to pay the cost of defense, even if the costs exceed the face amount
of the policy. This is true regardless of how many claims are brought during
the life of the policy.
3. Up-to-date information:
A title search of the public records conducted prior to issuing a title insurance
policy reveals the rights a buyer has with regard to future development of the
property. These include rights of way, easements, etc., as well as restrictions
that may have been placed on the use of the property by previous owners.
4. One-time premium payment:
For the cost of a single, one-time premium, title insurance protects the property
owner against loss resulting from any title defects to the property covered
in the policy for as long as the property is owned.
What are the principal forms of title insurance?
There are two principal forms of title insurance:
- The owner’s policy, which protects the property owner against loss
resulting from defects in the title.
- The lender’s policy, which insures that the holder of the mortgage
has a valid lien on the property and indemnifies the holder of the mortgage
against loss resulting from title defects insured against.
Why are two kinds of policies sometimes needed on a single property?
If a buyer pays cash for a property, only owner’s title insurance is needed.
In cases where capital is borrowed to purchase the property, the mortgage policy
protects the lender’s invested capital by insuring a valid lien in case
the mortgage is foreclosed. This protection enables the mortgage lender to sell
the mortgage to other types of investors, such as insurance companies, which
in turn act to bring in “new” money from other parts of the country
for use in local mortgage lending.
What is the difference between property or casualty insurance and
Property/casualty insurance protects the property owner against future events
that might adversely affect the value of his or her property, such as fires,
floods, etc. It is written for a fixed term for which the company receives a
stated premium. At the end of this period, premiums may increase or decrease
in line with the company’s loss experience.
A title insurance policy, on the other hand, is or can be perpetual as to
term. Only one initial premium is charged for the risks that are assumed and
carried over the years.