The Whats and Whys
of Title Insurance

Since the title is the most important piece in a real estate property transfer, it is important buyers and lenders know how to guard their assets.

What is title insurance?

Title insurance protects your property in the event complications arise from the title transfer. The contract of indemnity protects both buyers and lenders from things like defects in the title, previously unknown liens on the property, or fraudulent ownership transfers. A defect like these in your title could result in an expensive legal dispute or loss of the property altogether.

Why do you need it?

Simply put, it protects you from undiscovered information about the title. Many things can go wrong during and after a title transfer that may not have been immediately apparent. This could include forgeries or fraud, an unmarketable title, or even eminent domain disputes.

For example, the previous property owner owed the government real estate taxes before they sold it to you. As such, the title has a lien on it that you were unaware of. You, the policyholder, would be protected from a legal battle and any financial loss regarding the previous owner’s debts.

How much does title insurance cost?

Unlike a recurring, monthly premium, this insurance is only a one-time payment. The cost varies state-to-state. For example, in PA, the policies and rates are regulated by the Pennsylvania Insurance Commission. They base the cost off of either the mortgage amount or sale value (whichever is higher). 

Who pays for it?

This varies state-by-state, but generally the buyer pays for the insurance. Some states like Pennsylvania allow the buyer to choose their insurance company.

Are there different kinds of title insurance?

There are two types of title insurance: loan and buyer. The loan policy protects the lender from title defects. Buyer’s insurance is sometimes optional, protecting the buyer against defects in the title.

How do I choose a title insurance company?

Insurance companies are not supposed to close down or go bankrupt. However, that does happen upon occasion. To avoid this, the best way to choose an insurance company is by looking into trusted, local companies who have been around for decades.