A title insurance policy, in effect, provides an assurance that you really own the property you think you own.
When you purchase title insurance, the protection you are buying is based on a title search of public records that traces the chain of ownership of the property involved, and includes a guarantee from the title company that the title is accurate as stated.
This initial search and examination are important in identifying title problems before your real estate purchase is completed. While almost all other forms of insurance protect you against future events, a title policy is designed to protect you against the hazards of the past.
There are two types of title insurance policies:
- Lender’s Title Insurance:
In most areas of the country, the mortgage lender requires that the home buyer purchase a lender’s title insurance policy to protect the lender’s security interest in the real estate. Lender’s title insurance is issued in the amount of the mortgage loan. The amount of coverage decreases, and finally disappears as the mortgage loan is paid off. - Owner’s Title Insurance:
Protects the home buyer’s interest and is normally issued in the amount of the purchase price of the property. Coverage means that the insurer will pay all valid claims on the title as insured.
In addition, the title company will pay all legal fees for defending against any attack on the title as insured, as long as the purchaser, or his/her heirs, retain an interest in the property.