Understanding Title Insurance Policy and its Benefits
What is Title Insurance?
Title insurance, just as its name implies, is the type of insurance that protects the insured against property’s title or ownership. It protects property owners and their lenders against losses arising as a result of defective title, liens, encumbrances or other matters. In some cases, the purchaser of a property may not have enough time to thoroughly investigate the history of the property in order to ensure that there will not be any future claims regarding its title. In such situation, title insurance will ensure that your back is covered if you later discover that there are issues that may prevent you from having clear ownership of the property. However, before any title insurance company will insure you, the company will search the public records for issues that may likely affect the title of the property in order to determine its insurability. Some of the public records that may be searched include marriage records, death records and related tax records. You should understand that title insurance is not the same as homeowners insurance.
Do you need title insurance?
The fact that you have bought homeowners insurance policy does not preclude you from having title insurance. It is useful for every purchaser of property whether residential or commercial property. Residential properties include houses, condominiums, cottages, rental units, vacant land, cooperatives, leased and rural properties while commercial properties include office and industrial buildings, shopping centers, warehouses, rental units, apartment buildings, vacant commercial land and leased commercial properties. It does not matter whether you are paying cash for the property or the property is going to be financed through mortgage loan. Although title insurance may not be compulsory for somebody who is making an outright purchase of a property, lenders will likely insist that you are insured if you are obtaining mortgage loan to finance your property.
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Types of Title Insurance
There are two main types of title insurance namely owner’s policy and lender’s policy.
Owner’s Policy: This type of title insurance protects the property’s owner against certain listed title risks as long as the property is owned. Essentially it protects the owner’s equity in the property, that is, the price or market value of the property. However, the owner of the property will be expected to disclose all known issues or defects relating to the property’s title or non-title related matters to the insurance company.
Lender’s Policy: This protects the lender in case the mortgage turns out to be unenforceable. The protection remains as long as the mortgage amount is not fully paid. Lender’s policy usually provides coverage for the mortgage loan amount.
Why You Need Title Insurance
If you are a homeowner and still contemplating on whether you need to buy title insurance or not, I believe that if you know some of the benefits it offers, you may see reason why it should not just be an option for. Its benefits are highlighted below:
- It protects your interest in the property in case of fraud and forgery regarding the title of the property.
- It protects you from losses which may arise as a result of existing liens against the property’s title.
- It also provides coverage for some non-title items.
Read Also: Home Insurance: Useful Guide for Homeowners
Nevertheless, you need to understand that title insurance will not protect you against title defects that are known to you before you purchased the property. Also, if you suffer loss due to the matters not listed in public records, the title insurance company may not accept the claims. Other exclusions include losses as a result of environmental hazards, native land claims, zoning bylaw violations and other matters that are covered under home insurance. If you need coverage for losses due to theft, wear and tear of your home, flooding, fire, sewer backup and other non-title related issues, you should talk to your insurance broker. The insurance broker will be in a better position to advise you on the type of insurance that will meet your needs.