Background

Title insurance emerged in the early 20th century to address the risk that title searches and public records might miss defects that later surface. Unlike most insurance that protects against future events, title insurance protects against past title problems and provides legal defense if someone asserts a covered claim (American Land Title Association, ALTA).

How title insurance works

  • Title search: Before closing, a title company or attorney searches public records for liens, judgments, easements, probate issues, and other claims. If issues are found, the title company typically works to clear them before closing.
  • Policy issuance: If the title is insurable, the title company issues two common policies: an owner’s policy (protects the buyer) and a lender’s policy (protects the mortgage lender). The lender usually requires its own policy as a loan condition.
  • One-time premium and coverage: Title insurance requires a one-time premium paid at closing. If a covered title defect emerges later, the policy will pay for defense and settlements up to the policy limit.

Typical coverage and limits

  • Owner’s policy: Protects the homeowner’s equity and lasts as long as the owner or their heirs retain an interest in the property. It usually covers unknown heirs, fraud in prior transactions, and certain recording errors.
  • Lender’s policy: Protects the lender’s lien position and lasts until the mortgage is paid off.
  • Endorsements: Buyers can buy endorsements that add coverage for specific risks (e.g., access, zoning, or survey-related issues).

Costs and who pays

Premiums vary by state, purchase price, and whether you buy an owner’s policy. Premiums are often set or regulated at the state level and can be charged as a flat fee or a rate per $1,000 of the purchase price. Typical sample ranges (approximate): a few hundred to a few thousand dollars for an owner’s policy depending on price and state—ask your title company for a rate table (ALTA; Consumer Financial Protection Bureau).

Real-world examples

  • Hidden contractor lien: A buyer closed on a home and later faced a contractor’s lien filed against the prior owner. The owner’s policy paid legal defense costs and resolved the claim so the buyer kept the property.
  • Unknown heir claim: An heir surfaced years after purchase claiming ownership. The title policy funded defense and settlement negotiations.

Who is affected and eligibility

  • Buyers (owner’s policy): Any buyer can purchase an owner’s policy; it’s optional but recommended. The owner’s policy protects the buyer’s equity and is transferable to heirs.
  • Lenders (lender’s policy): Lenders almost always require a lender’s title policy to protect their security interest.
  • Special cases: Foreclosures, probates, boundary disputes, and some tax lien situations increase title risk—buyers in these transactions should consider enhanced coverage or legal review.

Practical tips (from practice)

  • Always request and read the title commitment/report. Confirm any exceptions and ask the title company how they will be cleared before closing.
  • Buy an owner’s policy even if the lender requires only a lender’s policy. The lender’s policy does not protect your equity.
  • Consider endorsements when the property has unusual risk factors (e.g., historic properties, shared driveways, flood easements).
  • Compare price and service: Title companies may charge different rates or offer different customer service—ask for a breakdown of fees and sample policy forms.

Common mistakes and misconceptions

  • “Title searches catch everything”: Public records can miss problems (e.g., forged documents, undisclosed heirs, or incorrect legal descriptions).
  • Skipping the owner’s policy: Relying only on the lender’s policy leaves the buyer unprotected.
  • Overlooking exceptions: Title policies contain exceptions and schedules—these are the issues the insurer will not cover unless cleared or endorsed.

Related resources

Frequently asked questions

Q: Is title insurance required for all home purchases?
A: No—title insurance is not legally required in most states. However, mortgage lenders commonly require a lender’s title policy as a loan condition. An owner’s policy is optional but strongly recommended (Consumer Financial Protection Bureau).

Q: How long does title insurance last?
A: A lender’s policy lasts until the mortgage is paid or the lender’s interest ends. An owner’s policy typically lasts as long as the insured or their heirs hold an interest in the property.

Authoritative sources

Professional disclaimer

This article is for educational purposes and does not constitute legal or financial advice. For advice about a specific property, title defect, or closing, consult a licensed real estate attorney or a qualified title professional.