Title insurance is one of the most important, yet often the least understood, purchases when investing in real estate. Buying a home can be a stressful process, especially when there is so much misinformation floating around. For example, title insurance is often confused with property insurance, which brings us to... 

Title Myth #1: I don't need title insurance when I have a homeowner’s property insurance policy. 

Title insurance is dramatically different from property insurance. Property insurance, flood insurance and auto insurance are all examples of “casualty” policies. A homeowner’s property insurance policy protects the policy holder from financial losses occurring after the policy is purchased - against future perils, like thefts, fires, or windstorms. 

Title insurance, in contrast, is a contract of indemnity under which the insurer agrees to indemnify the insured against loss or damage resulting from liens, encumbrances or title defects that occurred prior to issuance of the policy but were discovered after issuance of the policy.  

During the home-buying process, your title insurance company will conduct a thorough title search to determine insurability. This search includes examining public records, court documents, and other sources to verify the property's history and will resolve issues prior to the closing and issuing of the title policy. But sometimes there are issues that are not discoverable. These are called “hidden defects”, and one of the reasons title insurance is so important. 

Title Myth #2: I don't need an owner’s policy because my lender is getting the loan policy. It covers the same stuff, right? 

While it’s true an owner’s title insurance policy has similar coverage to the lender’s policy, it is the policy holder that has the protection. In other words, the lender’s policy protects your lender, not you. 

It’s also important to understand the lender’s policy will insure up to the amount of the loan, and the coverage will shrink as the loan is paid down. This means once the loan is paid off, there is no more title insurance coverage on your home. 

Title Myth #3: It’s expensive! 

Total costs associated with selling or buying a home ARE expensive, but title insurance is not the best place to cut corners. Unlike homeowner’s insurance, property taxes or interest on the loan, the premium for an owner’s title insurance policy is paid only once at closing yet protects the homeowner for as long as they or their heirs have an interest in the property. 

Another way to consider the cost of the title insurance premium is the median length of home ownership is just over 13 years, so the annualized cost of your title policy is likely one of the smaller costs you will have as a homeowner. 

Perhaps the most significant consideration is what the cost and stress would be to you if there is a claim against your title and you don’t have an owner’s title insurance policy. In addition to the dollar amount of the claim itself, there will be attorney’s fees and possibly court costs incurred to defend your title. A covered claim under an owner’s title policy includes the costs and fees of clearing the issue. 

Title insurance may seem like just another cost in a real estate transaction, but it provides essential protection against potential title defects and substantial financial losses. Understanding the importance of title insurance in safeguarding your real estate investments will help you make informed decisions. 

For more information on REALSource University, or to view upcoming classes please visit: www.anywhereis.re/virtualtraining.

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About Melanie Dawn Molina Wood

Melanie Dawn Molina Wood is the Educational Program Coordinator for Real Source University for Anywhere Integrated Services. Melanie Dawn has worked in the real estate industry since 1985; and brings her experience and engaging teaching style to you with a series of high energy, educational real estate classes designed to boost your real estate knowledge and grow your business.

This material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. The material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. Not for reproduction.