# Title Insurance Explained: Protect Your Property and How to Buy It

![Title Insurance](https://www.investopedia.com/thmb/xLll4-kFNeBJ9GmehG4YEiDGbAk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/titleinsurance-ef80077445c040029e7cd52f943b6a0c.jpg)

*— Julie Bang / Investopedia*

## What Is Title Insurance?

Title insurance is crucial in protecting both lenders and homebuyers from financial losses due to [defects in a property's title](https://www.investopedia.com/terms/b/bad-title.asp). These defects can include back taxes, liens, or conflicting wills, which can become a burden for current owners. Understanding the types of title insurance and knowing how to purchase them can secure your investment during any real estate transaction.

### Key Takeaways

*   Title insurance protects both lenders and homebuyers from financial loss due to title defects, such as liens or past-due taxes.
*   There are two types of title insurance: lender's title insurance, which the borrower purchases to protect the lender, and owner's title insurance, which is often optional and protects the buyer.
*   A title insurance policy covers various risks like flawed records, incorrect ownership, and falsified documents, offering protection against past occurrences.
*   The process of purchasing title insurance begins with the escrow or closing agent, and costs can range from $500 to $3,500, depending on various factors.
*   Not having title insurance could expose buyers to significant risk, including financial burdens from undisclosed claims or defects.

## Exploring the Varieties of Title Insurance Policies

A [clear title](https://www.investopedia.com/terms/c/clear-title.asp) is necessary for any real estate transaction. Title companies must do a search on every title to check for claims or liens of any kind against them before they can be issued.

A title search checks public records to [confirm a property’s legal ownership](https://www.investopedia.com/terms/a/american-land-title-association-alta.asp) and find any claims against it. Errors in surveys and unresolved building code violations can make a title "dirty."

Title insurance protects both lenders and homebuyers against loss or damage occurring from liens, encumbrances, or defects in a property’s title or actual ownership. Common claims filed against a title are back taxes, liens (from mortgage loans, [home equity lines of credit (HELOCs)](https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473), [easements](https://www.investopedia.com/terms/e/easement.asp)), and conflicting wills. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences.

A basic owner’s title insurance policy typically covers the following hazards:

*   Ownership by another party
*   Incorrect signatures on documents, in addition to forgery and fraud
*   Flawed records
*   Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
*   Encumbrances or judgments against property, such as outstanding lawsuits and liens

> **Important**
>
> In lieu of title insurance, some private transactions can involve a warranty of title, which is a guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property.

## Types of Title Insurance: Lender's vs. Owner's Policies

There are two types of title insurance: lender’s title insurance and owner’s title insurance (including extended policies). Almost all lenders require the borrower to purchase a lender’s title insurance policy to protect the lender in the event that the seller was not legally able to transfer the title of ownership rights. A lender’s policy only protects the lender against loss. An issued policy signifies the completion of a title search, offering some assurance to the buyer.

Because [title searches](https://www.investopedia.com/terms/t/titlesearch.asp) aren't perfect, owners need extra protection with an owner's title insurance policy. While lender’s title insurance is required for you to get your mortgage loan, owner’s title insurance, which is purchased by the seller to protect the buyer against defects in the title, is optional.

Consider owner’s title insurance as you pay down your mortgage and own more of your home. As a result, you have more to lose if a claim comes up. This is especially important if you plan on spending a long period of time in your home.

## How to Successfully Purchase Title Insurance  

An [escrow](https://www.investopedia.com/terms/e/escrow.asp) or closing agent initiates the insurance process upon completion of the property purchase agreement. There are four major U.S. title insurance underwriters: Fidelity National Financial Inc., First American Title Insurance Co., Old Republic National Title Insurance Co., and Stewart Title Guaranty Co. There are also regional title insurance companies from which to choose.

The cost of owner’s title insurance ranges from $500 to $3,500, depending on the state where you live, the insurance provider you choose, and the purchase price of your home.

A lender’s policy and an owner’s policy are often required together for complete protection. At closing, the parties purchase title insurance for a one-time fee. The [Real Estate Settlement Procedures Act (RESPA)](https://www.investopedia.com/terms/r/real-estate-settlement-procedures-act-respa.asp) stops sellers from forcing buyers to use a certain title insurance carrier to prevent abuse.

> **Tip**
>
> While your lender, lawyer, or real estate agent may recommend a title insurance company, it’s always a good idea to comparison shop.

## The Potential Hazards of Foregoing Title Insurance

Without title insurance, buyers face big risks if there are title defects. Consider a homebuyer searching for the house of their dreams only to find, after closing, unpaid [property taxes](https://www.investopedia.com/terms/p/propertytax.asp) from the prior owner. 

Without title insurance, the financial burden of this claim for back taxes rests solely with the buyer. They will either pay the outstanding property taxes or risk losing the home to the taxing entity. With title insurance, coverage lasts as long as the buyer owns or is interested in the property.

Similarly, lender’s title insurance covers banks and other mortgage lenders from unrecorded liens, unrecorded access rights, and other defects. In case of a borrower’s [default](https://www.investopedia.com/terms/d/default2.asp), if there are any issues with the property’s title, a lender would be covered up to the mortgage amount.

Real estate investors should make sure that a property does not have a bad [title](https://www.investopedia.com/terms/t/title.asp) before proceeding with any purchase. Homes in [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp), for example, may have a number of outstanding issues. Buyers may consider purchasing owner’s title insurance to protect themselves against unforeseen claims against the title.

## What Are the Types of Title Insurance?

There are two types of title insurance: lender’s title insurance and owner’s title insurance (including extended policies). Almost all lenders require the borrower to purchase a lender’s title insurance policy to protect the lender in the event that the seller was not legally able to transfer the title of ownership rights. A lender’s policy only protects the lender against loss.

Since title searches are not infallible and the owner remains at risk of financial loss, there is a need for additional protection in the form of an owner’s title insurance policy. Owner’s title insurance, often purchased by the seller to protect the buyer against defects in the title, is optional.

## How Do I Buy Title Insurance?

An escrow or closing agent initiates the insurance process upon completion of the property purchase agreement. Often, a lender’s policy and an owner’s policy are required together to guarantee that everyone is adequately protected. At closing, the parties purchase title insurance for a one-time fee. The cost of owner’s title insurance ranges from $500 to $3,500, depending on the state where you live, the insurance provider you choose, and the purchase price of your home.

## Why Should I Buy Title Insurance?

Having no title insurance exposes transacting parties to significant risk in the event that a title defect is present. Consider a homebuyer searching for the house of their dreams only to find, after closing, unpaid property taxes from the prior owner. Without title insurance, the financial burden of this claim for back taxes rests solely with the buyer. With title insurance, the coverage protects the buyer for as long as they own—or have an interest in—the property. Similarly, the lender’s title insurance covers banks and other mortgage lenders from unrecorded liens, unrecorded access rights, and other defects.

## The Bottom Line

Title insurance safeguards against financial losses from title-related issues, covering claims such as liens, back taxes, and conflicting ownership. It comes in two forms: lender's and owner's title insurance. Lender's insurance, often mandatory, shields the lender against title defects. Owner's insurance, which sellers often purchase to protect buyers, is optional but crucial for long-term homeowners to safeguard equity. Securing a clear title through this insurance reduces significant financial risks, ensuring peace of mind in property transactions.

> **Article Sources**
>
> 1.  Consumer Financial Protection Bureau. “[What Is Owner’s Title Insurance?](https://www.consumerfinance.gov/ask-cfpb/what-is-owners-title-insurance-en-164/)”
>     
> 2.  National Association of Insurance Commissioners. “[Title Insurance](https://content.naic.org/cipr_topics/topic_title_insurance.htm).”
>     
> 3.  Consumer Financial Protection Bureau. “[What Is Lender’s Title Insurance?](https://www.consumerfinance.gov/ask-cfpb/what-is-lenders-title-insurance-en-163/)”
>     
> 4.  Zillow. “[What Is Title Insurance and Do I Need It?](https://www.zillow.com/home-buying-guide/what-is-title-insurance/)”
>     
> 5.  GovInfo.com. “[Public Law 93-533—Dec. 22, 1974](https://www.govinfo.gov/content/pkg/STATUTE-88/pdf/STATUTE-88-Pg1724.pdf#page=1),” Page 1728 (Page 5 of PDF).