Title Insurance

A title insurance policy is a one-time premium, paid at closing, that covers you and your lender if someone later claims a legal right to your property based on something that happened before you bought it. Unlike other insurance, title insurance doesn’t protect against events that occur after you own the home; it protects against undiscovered claims from the past.

Why title defects matter

When you buy a home, you assume the seller has the legal right to transfer it to you. But title is sometimes clouded—tangled by events years or decades in the past. A previous owner’s ex-spouse never formally waived spousal rights. An adult child of a deceased former owner unexpectedly files a claim. A contractor placed a lien on the property that was never released. A deed was forged. Property taxes went unpaid and a government agency has a claim. These are not everyday occurrences, but they are real and can be devastating: you could spend tens of thousands in legal fees defending your ownership, or lose the property altogether.

A title search—performed by a title company before closing—examines public records to uncover these defects. A thorough search catches most problems. But no search is perfect; records are sometimes incomplete, hidden, or misfiled. Title insurance covers the gaps that the search misses.

Two types: owner’s and lender’s

Lender’s title insurance is mandatory. When you borrow money, the lender requires a policy protecting its investment. The lender’s policy covers only the lender’s interest (the loan amount), not yours. If a claim reduces the property’s value below the outstanding loan balance, the lender is paid first; you absorb the rest.

Owner’s title insurance is optional but strongly recommended. It covers your equity—the full purchase price or its current value, whichever is greater. If a claim emerges, the policy pays for legal defence and, if necessary, pays out the policy amount if you lose the property.

Both policies are issued after a title search. The search is thorough but not infallible; the policy is insurance against what the search misses. If a defect found during the search is noted as an exception (an “exception” to the policy), the insurance won’t cover it. This is why a careful pre-closing review of the title report is crucial.

Cost and coverage

The cost of a title policy is a one-time premium, typically 0.5 to 1 per cent of the purchase price. A $400,000 home might have a combined lender’s and owner’s policy premium of $2,000–4,000. This is far cheaper than most other insurance but provides remarkably broad protection.

Owner’s policies cover an indefinite period—you’re covered as long as you own the home, and your heirs are covered after you die. Unlike car or homeowners insurance, title insurance never lapses and never increases. You pay once at closing and you’re covered for life.

Lender’s policies lapse once the loan is paid off, since the lender no longer has an interest in the property. But by then, if a defect was going to be discovered, it likely would have been.

What is and isn’t covered

Title insurance covers claims that pre-date your purchase. It protects against forged deeds, fraudulently transferred property, undisclosed heirs claiming a right to the estate, unreleased mortgages or contractor liens, judgments against prior owners, improperly executed wills, and unpaid property taxes or assessments.

It does not cover defects you knew about or agreed to accept at closing. If a survey shows your fence is three feet over the property line and the title report notes this as an exception, the policy won’t cover a future lawsuit by your neighbour. It also doesn’t cover problems that arise after you buy—structural damage, environmental contamination, zoning violations you create, or liability from an accident on your property. That’s what homeowners insurance covers.

Exceptions and underwriting

Before a title policy is issued, the title company performs underwriting: a careful review of the deed, prior transfers, mortgages, liens, taxes, and judgment records. Any problem found is noted as an exception—it’s listed on the policy as something the insurance doesn’t cover.

Common exceptions include utility easements (the electric company has the right to access lines on your property), property tax assessment liens (if taxes are years in arrears), and zoning restrictions. Most exceptions are routine and don’t affect the property’s value. But some are serious. If the underwriting uncovers a $50,000 tax lien, the closing may be delayed until it’s paid and released.

Your attorney or title agent should walk you through the exception list before closing. This is your chance to object, negotiate, or ask the seller to cure the defect. After closing, it’s too late.

A claim in practice

Suppose you bought a home in 2015. In 2020, a woman contacts you claiming to be the biological daughter of the property’s owner in 1980, and she says her father died without a valid will and she never received her inheritance share. She files a lawsuit claiming an interest in the property.

Your title insurance policy covers this. The title company hires a lawyer, investigates the claim, and litigates on your behalf. If the claim is invalid (say, she waited too long under the statute of limitations), the policy pays for your defence. If the claim is valid and she has a legal right to a share, the policy pays out (up to the policy limit) to settle the claim. Without title insurance, you would hire your own attorney and pay out of pocket—potentially tens of thousands of pounds before a resolution.

Shopping for title insurance

Unlike some insurance, title insurance rates are regulated by state and are largely uniform. A title company in one county can’t legally charge much more than another. However, they compete on service, speed, and occasionally on bundled services (e.g., free escrow management).

You have the right to shop for a title company. Ask your lender or real-estate agent for options, but verify you’re comparing apples to apples: the same coverage, same exceptions, same timeline. In some states, the seller traditionally pays for the owner’s policy; in others, the buyer does. This is negotiable at the offer stage.

Refinancing and title insurance

If you refinance your mortgage, you’ll need a new lender’s title policy. However, you do not need a new owner’s policy—the original one follows you. This can save money: a refinance title premium is often discounted if an owner’s policy was recently issued on the same property.

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