When a Realtor mentions the need for Title Insurance to their buyer or seller, they usually get a wide range of reactions, since most people are unclear as to what exactly title insurance is and/or what it actually covers.
Basically, Title Insurance is a type of insurance that guarantees ownership interest in real estate. It differs significantly from most other forms of insurance that readily come to mind (like health, hazard, life and even automobile insurance), in that title insurance eliminates risk while the other types assume risk.
The function of most other forms of insurance is simply assuming your risk. These insurance companies provide financial protection to their policyholders by preventing loss arising out of unforeseen future events. In order to keep the insurance in place, ongoing payments or premiums are necessary.
The primary purpose of Title Insurance is to eliminate risk and prevent losses caused by defects in title arising out of events that have happened in the past. Title insurance guarantees that there have not been any title problems prior to the time a policyholder takes title. A title insurance policy is issued for a reasonable, one-time fee.
A Title Insurance Company goes through a specific process during a title search (or as it reviews a property's history of ownership) that will help the title company minimize the risk that a policy holder will suffer any loss or be subject to any unfavorable claim against their property. Equally important is that title insurance safeguards an individual's ownership of or claim in their property.
In the event a title problem arises during the title search, all parties involved in the transaction are notified (via a title commitment) and the title company specifically outlines what has to take place in order to cure this problem. Once a title policy is issued, if problems arise in spite of a title company's research, the title insurance company will pay the cost of defending against an attack on the title as insured, as well as any other valid claims.
Simply stated, Title Insurance removes risk--risk to one who owns property or to those who lend money on a piece of property. If you have any questions or need more information, please contact us.