Title insurance is an insurance policy that protects a homeowner or lender if somebody puts a claim against the property being purchased. Title insurance policies are there to protect you as the buyer after you have closed on the property from any issues that were not discovered during a title search.
There are two types of title insurance policies. A lender’s title insurance policy and an owner’s title insurance policy. Like the name suggests, a lender’s policy only protects the lender while you pay a mortgage and not you once the mortgage is paid off. That is why you may want purchase an owner’s title insurance policy, although it is likely not legally required, before you close.
By purchasing an owner’s title insurance policy you will continue to be protected against claims after you’ve paid your mortgage off and the lender’s policy expires.
Claims that title insurance can protect you from include:
- Outstanding lawsuits
- Liens
- Mistakes on the title like misspellings
- Fraud
- Back taxes
- Errors and typos at the county clerks office
- An unknown heir coming out of nowhere
There are a lot of issues that can cost you time, money, and potentially your home, and that is why buying a title insurance policy is a good idea.
Here’s how the two types of title insurance policies compare:
| Lender’s Title Insurance | Owner’s Title Insurance | |
| Is title insurance required? | Your lender may require this. | No |
| Who pays for title insurance? | Homebuyer | Homebuyer (unless written into the contract that the seller will pay for it) |
| Who does title insurance protect? | Lender | Homeowner |
| How much does title insurance cost? | Around 0.5% of the purchase price
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Around 0.5% of the purchase price
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| How often do you pay? | Once (at closing) | Once (at closing) |
| How long does title insurance last? | Until mortgage is paid off | As long as you own the property |
Now you know what title insurance is, the two types of title insurance that are available, and when you may be required to purchase a title insurance policy and why you should consider it.