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Understanding the Fine Print: Title Insurance Policies Explained

homeowner signing title insurance policy

All title insurance companies offer a standard title insurance policy to protect the buyer from specific incidents that may impact the property’s ownership rights. The title policy is typically secured before finalizing a home purchase and paid for as part of the closing costs at the settlement table.  

A standard title policy provides coverage if discrepancies in publicly available records  jeopardize legal property ownership.However, it's crucial to acknowledge that various errors and unforeseen situations may still threaten property rights even after the purchase or mortgage acquisition is complete and may not be covered by standard title coverage. Consequently, some home buyers choose to purchase enhanced title coverage, providing additional protection to cover a more comprehensive range of potential issues.  Let’s look at the different types of title insurance policies.

The Two Types of Covered Entities

Loan Policy: Most lending institutions require a loan policy to be provided to them at settlement.  Lenders insist on obtaining title insurance as a prerequisite to securing their loan interest. This precaution is particularly critical since the lender mortgage lien relies on the property maintaining value as security for its lien. Once issued, the loan policy exclusively safeguards the lender concerning its claim's legitimacy, enforceability, and precedence against any title-related imperfections.

Owner's Policy: While the title policy protects the lender, the owner's investment in the property may still face potential risks. With an owner's policy, the title insurance company will address claims related to the insured lender if any title-related issues arise after the purchase. The buyer must acquire an owner's policy to protect themselves from inherent title-related risks. Like the lender's policy, this owner's policy is a one-time purchase providing enduring protection.  

What is an Enhanced Title Insurance Policy?

The name itself is a give-away. Enhanced title insurance represents a more comprehensive owner's title policy, incorporating additional protections. While the standard owner's title insurance policy offers  protection against  several common claims, the enhanced policy extends coverage to encompass those claims and others that may arise. Enhanced title insurance provides supplementary safeguards, inclusive of all elements found in the standard policy. For instance, if undisclosed liens that are not yours surface  post-property purchase, the enhanced title policy will provide coverage. It also addresses situations involving restricted access to the property and zoning complications related to your residence. A notable advantage is the defense against structures encroaching onto your property, a more common issue than one might anticipate.  It is important to know that the enhanced policy can only be issued on a bona fide sale of a one-to-four family residence or residential condominium to a natural person.  An enhanced policy may not be issued to a partnership, LLC or any kind of corporate entity or for commercial or non-residential property.  Since you are gaining more protection, the enhanced policy is normally a 10% upcharge from the standard policy.    

Hopefully this gives you an overview of the different types of title insurance policies.  It is important to note that if you have financing you will be required to purchase a lender’s title insurance policy.  You will see that the owner policy is listed as “optional” but for a very small additional fee it is absolutely worth the cost for protecting your largest asset and purchase.       

We're Here to Help

Founded in 1973, Conestoga Title Insurance Co. has firmly established itself as a highly regarded entity in title insurance for the last 50 years. Conestoga Title is recognized as a steadfast presence in the real estate, legal, and financial sectors and is known for its unwavering commitment to providing reliable title insurance. The cornerstone of Conestoga Title's success lies in its dedication to building robust relationships through exceptional service, extensive expertise, and a strong sense of financial security. Explore the FAQs on our informational page or contact us at 800-732-3555 for further insights into title insurance.

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