What Is Title Insurance?
As real estate is the nation’s largest market, its purchase and sale are essential to the health of the U.S. economy. However, these transactions are never without risk. That’s why title insurance has been protecting American homeowners for more than 130 years.
When a piece of real property is financed, purchased or sold, a record of that transaction is generally filed in public archives. Likewise, other events that may affect the ownership of a property are also documented and filed. These may include liens, levies, encumbrances, etc. When a buyer purchases title insurance, the title company searches these records to find (and remedy, if possible) issues that may affect the purchaser’s ownership.
Title Search and Examination
That’s where title insurance differs from traditional insurance models. When you purchase a policy insuring you for matters relating to your car or health, the insurance company assesses the risk of insuring you, and bases its premium on the risk being assumed. With title insurance, the insurer first works to identify the status of ownership, liens and other matters affecting title by collecting documents affecting title from the public records that are statutorily identified for the recording of real estate transactions. This process is called the search. Once the search is complete, the title insurance underwriter can then determine the insurability of the title and list exceptions from coverage and requirements to insure. To learn more about the other steps involved in title insurance please visit our Interactive Guide to Title Insurance.
Of course, even the most skilled title professionals may not find all title problems. Other risks include matters that are more difficult to identify, such as title issues resulting from filing errors, forgeries, undisclosed heirs, and other unforeseen problems. That’s one reason why your title insurance policy can play a key role in protecting your real estate investment.
When you purchase a new home or another piece of real property by securing a mortgage, you will be required by your lender to purchase a loan policy of title insurance. This policy ONLY insures the lender against covered title defects and ONLY up to the amount of the loan. This coverage in favor of the lender lasts for the life of the loan under limited circumstances stated within the policy.
You will also have the option of purchasing an owner’s policy of title insurance, which provides insurance directly to the insured owner listed in the policy, and describes the type of real property interest owned. The insurance in both an owner’s and a loan policy is subject to the policy provisions, which include the covered risks, exclusions from coverage, the conditions and the exceptions to title listed on a schedule to the policy. We highly recommend that everyone purchasing real estate also obtain an Owner’s Policy of Title Insurance. There are two types of Owner’s Policies of Title Insurance available to you, a Standard Policy and an Enhanced Policy. To learn about the difference between these policies check out our blog post on the Advantages of an Enhanced Policy.
You will pay a one-time premium for both the loan policy and the owner’s policy at the close of your transaction, based on the total value of your home and the amount of your loan. In Pennsylvania, the title insurance rate is regulated by the state. Please visit our Rate Calculator to get an estimate on your title insurance premium. This is another way in which title insurance differs from other insurance models, where premiums are paid on an ongoing basis. The purchase of a home or other real estate may be the largest financial investment you ever make. Title insurance can give you added peace of mind knowing that the title to your investment is insured and secure.