What is Title Insurance?
A “title” is a document that states the legal owner of a property. Title insurance is a contract between a homeowner and an insurance company. The insurance company will defend the homeowner’s ownership rights in court for a onetime payment.
If the homeowner obtained a loan or mortgage, he must also purchase a title insurance policy that protects the lender from litigation.
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Why Do I Need It?
You may not know if other people have a legitimate claim to ownership over your property.
Title insurance will protect you if anyone sues you to decide whose ownership claim is most legitimate.
How Does It Work?
Complete this process to ensure that you are the only person with ownership rights over the property.
- Before you purchase a property, hire a title company or attorney to search records pertaining to previous owners.
- You can purchase the property if nothing is found.
- The person or business that conducted the search must enlist the services of an underwriting company, which is a company that writes insurance policies, to issue a title insurance policy.
What Does It Cover?
A title insurance policy states that the insurance company will defend you in court if an unknown claimant sues you for property rights . If you lose, the insurance company will compensate you for the lost value of your home or equity.
If not found in the initial search, it protects the homeowner/lender from litigation due to:
- Documentation errors
- Liens— This is a debt owed by a previous owner for which the property was used as collateral
- Easements—the right of another party to cross through your property for a specific purpose. For example, utility companies may have an easement on your property so that they can access power lines that cross your land.
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How Much Does It Cost?
The state regulates title insurance prices, so you may not need to shop around as much as you would for other types of insurance. Typically, an owner’s policy is not more than $4,000 but can be much less.
The value of the property and the state where you live dictate title insurance premiums. To get a rough idea, you can multiply the property value by 0.05, or 5%. For example, a $300,000 property would carry a $1,500 title insurance premium. In some states, such as New York, it can be much higher.
Unlike other types of insurance, premiums for title insurance are only paid once at closing. When your agent and title company complete the transfer of the title to you, you pay for your title insurance policy, and it covers you and your heirs for as long as you occupy the property.
- 1 out of every 3 title searches reveals an error or claim.
- The first title insurance company was incorporated in 1876 in Pennsylvania.
- Ben Franklin laid the groundwork for the insurance systems we have today.