As you go through life, you will purchase all types of insurance with the hope that you will never have to use it. Things like health insurance, car insurance, life insurance, and more are often paid monthly in order to receive coverage and protection from future events that may or may not happen.
While title insurance may be a bit different, it, too, is something you hope never to need to file a claim under. But, is it worth purchasing? What does it cover?
What is Title Insurance?
Just because a seller has listed a home for sale does not mean that title to the property is free from any encumbrances or liens. It doesn’t even mean that the seller has the right to sell. To make sure you are making a wise investment and purchasing a home with a clear title, the title company will perform a title search prior to your purchase.
A title search is a deep dive through public records, generally for the prior 60 years, though, if needed, a search can go back much longer. The title examiners are looking for anything that could cloud the title, such as judgments, liens, outstanding taxes, encroachments, easements, bankruptcy filings, and other similar matters.
Any issues found will have to be addressed before the closing - otherwise, the sale may not go through. Your title company will draw up a title commitment stating the findings of the title search. You can review this commitment to make sure the encumbrances that exist are acceptable to you. They will then offer you a title insurance policy as a layer of protection in case there is anything that was missed during the search that may affect your use of your property.
Two Types of Title Insurance
It is important to note that there are two types of title insurance policies. The Owner’s Policy protects the owner from any problems that may arise in the future as a result of title issues that exist at the time of your purchase. The Lender’s Policy, as its name suggests, protects the lender from similar concerns.
Owner’s policies are not often required (though it depends on the state), but are highly recommended due to the protections they bring the owner. They stay in effect for as long as you or your heirs have an interest in the property. You may be offered the option of different levels of Owner's title insurance, each with its own protection and coverage.
A Lender’s policy is almost always required by the lender and is usually a condition of the loan. This helps the lender reduce its risk in loaning the money for the purchase. In case something goes wrong with the title, they are covered.
What Does Title Insurance Cover?
It doesn’t matter how diligent the title search, it is possible for things to get missed. Perhaps a judgment or lien was recorded erroneously in public records and didn’t show up in the search. Or, maybe one of the prior deeds was signed fraudulently and not caught. Sometimes things can arise after the property is transferred to the new owner. If a missing heir comes knocking and claiming rights to your property, what would you do?
Title insurance covers things that have happened in the past. As long as a policy premium was paid at closing, then any time an issue arises now or in the future, a simple claim gets filed with the insurance company.
Get Answers to Your Title Insurance Questions
At Conestoga Title Insurance Company, we believe in the power of knowledge. We understand just how important it is to have title insurance and we want you to have the knowledge to make the right choice for your future, too.
If you have questions about title insurance, we have answers. Contact us today at 800-732-3555.