The policy will cover a prior owner if, in selling the property, he or she gave a deed containing certain warranties with respect to title. The policy provides two types of coverage. First, if someone contests the buyer's insured title in a legal action, the insurer will defend the title at no expense to the buyer. Second, if there is a defect in the title that cannot be eliminated, title insurance provides financial indemnity to protect the buyer from loss due to the defect, up to the amount of the policy. Title insurance is available from title companies and, in some states, from lawyers' groups.
Title insurance varies in price in different parts of the country.
The extent of the protection is only as broad as the language of the policy itself. The buyer's attorney can help gauge whether the policy is adequate. Lenders usually require buyers to obtain title insurance that protects only the lender. This is known as a lender's title policy. The buyer may have to pay for additional title insurance to protect his or her interests or negotiate with the seller to purchase such a policy.