When I worked in title insurance everybody asked me: What is title insurance? Some of them even owned a home already. What people rarely say is thank you for making sure I have access to my property or thank you for telling me I have a shared driveway. This comes as no surprise. Due to lack of communication, most people don’t know what title insurance is for. Title insurance plays a critical role and the only time you hear about it is if something goes wrong but in reality, your real estate agent should inform you what it is before you sign the mortgage. (For more, see: Holding Titles on Real Property.)
What Title Insurance Is Not
- It is not another form of property insurance.
- It does not expire.
- It is not expensive relative to property insurance.
- It is not accidental insurance like home insurance.
- It does not tell you how to build your house.
What Title Insurance Does
- Title insurance does provide insurance against others claiming your property as theirs. It does ensure that you can access your land and it insures you against any outstanding liens, judgments or other outstanding mortgages from previous owners.
- Title insurance does last forever. You pay a one-time premium when you purchase your own policy and you will never have to pay for your title policy as an owner ever again. They will insure you as long as you own that property. In some regions, the seller will pay for the owner’s title policy and you will have to pay for the lender’s policy if you are taking out a mortgage and you will have to pay the mortgage policy every time you refinance.
- It is inexpensive. Title insurance is probably one of the cheapest types of insurance since you are only paying one time during your ownership of the home. Of course, this is relative to what is being insured - car insurance and property insurance will easily be more expensive. Title insurance costs will be associated with the value of your home.
- Title insurance is preventative. Title insurance is done so that accidents don’t happen. They are ensuring that they have researched your property thoroughly and that there is nothing that they have not reported on your policy that you need to know about legally. Property insurance, however, is casualty based, meaning you are paying for insurance in case something tragic happens.
- Title insurance does provide information on the documents that tell you how to build your house. The title company is not the one that tells you how to build your house. The covenants that are associated with your property set the guidelines and it is not the title company’s responsibility to tell you how to build your home within your property in regards to setbacks and easements.
Title insurance is not the most important part of the home buying process. But it is important enough to understand what it does for you and me as homeowners. The last thing we want when we purchase a home are any surprises. Simply put, title insurance minimizes the number of surprises you will receive as a homeowner. (For more from this author, see: 5 Ways to Improve Your Finances Throughout Life.)