Key takeaways
- A lender's policy protects only the lender's interest, not your equity.
- Title insurance covers past defects, unlike other insurance which covers future events.
- It is a one-time premium at closing covering as long as you hold title.
- Standard policies exclude survey matters and unrecorded claims unless endorsed.
Two policies, two beneficiaries
Almost every lender requires a lender's title policy, which protects the lender's lien position up to the loan amount and declines as the loan is repaid. It provides you no protection whatsoever.
An owner's policy protects your equity for as long as you or your heirs hold title. It is usually optional, frequently paid by the seller depending on regional custom, and costs a fraction of the lender's policy when issued simultaneously. Declining it to save a few hundred dollars is a poor trade against the risk it covers.
What it actually covers
Title insurance is retrospective. It covers defects that already existed when you took title but were undiscovered: forged deeds, undisclosed heirs, errors in public records, improperly executed documents, unreleased liens, judgments against prior owners, boundary disputes, and unrecorded easements.
The policy pays defense costs and losses up to policy limits. In practice the defense obligation is often the most valuable feature, since litigating a title claim can cost more than the underlying defect.
Exceptions, endorsements, and reissue rates
Standard policies contain exceptions — typically survey matters, rights of parties in possession, unrecorded mechanics liens, and mineral rights. An extended coverage policy, usually requiring a current survey, removes several of these.
Ask about reissue or substitution rates. If the property was insured relatively recently, many underwriters offer a substantial discount on a new policy. Title rates are regulated differently in each state; in some they are fixed by law, in others genuinely competitive.
Frequently asked questions
Do I need title insurance on a cash purchase?
No lender requires it, which makes an owner's policy more important, not less. Nothing else protects your equity against a defect in the chain of title.
What is a title search?
An examination of public records establishing the chain of ownership and identifying encumbrances. The search identifies known problems; insurance covers the ones the search misses.
Can I shop for title insurance?
In most states yes, and federal law prohibits a seller from requiring you to use a particular title insurer as a condition of sale. Pricing and service quality both vary.
Sources & further reading
- American Land Title Association policy forms and endorsements
- Real Estate Settlement Procedures Act §9
- State departments of insurance title rate filings
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.