A deed only conveys the rights of ownership that the person signing the deed has to convey. Title insurance is a legally binding contract, issued following a complete title search of the relevant public records. A title insurance policy protects the insured from matters of public record except those matters specifically reserved from coverage in the policy. Title insurance also protects against certain losses a title search could not disclose such as fraud, forgery, mental incompetence of former owners, missing heirs, and defective deeds. Title insurance was originally designed to protect the interests of property owners.
Today there are basically two types of policies - an owner's policy or a lender's policy.
The owner's policy is generally provided by the seller for the new buyer. It states the condition of the title at the time of purchase and promises to defend the insured's rights of ownership or interest in the property. The lender's policy is provided by the buyer for his lender. This policy insures the lender's security interest in the property which is collateral for the loan. A title insurance policy may also be issued to a purchaser under a land sales contract.