Insure your biggest investment.
If you own a home, you think you know what it means to be a property owner.
The deed is in your name. You’re making mortgage payments. You live there. It’s your house.
Except for one thing:
You might not actually own that property 100% the way you think you do.
Title defects, liens and fraud could emerge to attack your ownership years after you close on your new home. And when they do…
Without title insurance you are fully exposed.
Believe it or not — homeowners pay up to $22 billion in title insurance premiums each year, and most of them have no idea what they are paying for.
In this guide, you’ll learn exactly what title insurance does and does not cover and explain why everyone needs title insurance as part of their real estate purchase.
You’ll Learn:
- Title Insurance 101
- Hidden Costs of Title Issues
- Essential Title Insurance Coverage
- Calculating Title Insurance Protection Needs
Title Insurance 101
Title insurance is not like any other insurance you will ever buy.
Here’s why: Homeowner’s insurance covers future perils such as fire or theft. Title insurance is there to protect you against past issues that can affect your rights.
Consider this…
Purchasing a house is not just buying a physical structure, it’s buying the right to own that property. Title insurance makes sure that right is valid, and protects you if there’s a future challenge.
But here’s the thing most people don’t know…
Title insurance policies come in two varieties:
- Lender’s Policy — Mandatory coverage for the mortgage company (insures their interest)
- Owner’s Policy — Optional but essential insurance for the homeowner
The lender forces you to purchase their policy as a loan condition, but they will not tell you that it does not in any way protect you.
This is a problem.
If you are estimating title insurance costs for your property purchase, try using the Pennsylvania title insurance rate calculator to quickly determine your potential costs based on your individual situation.
The owner’s policy is what protects your financial stake in the property. Without it you could lose your home to a valid claim and still owe the mortgage.
Pretty frightening if you ask me.
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Hidden Costs of Title Issues
Let’s take a deeper dive into why title insurance matters so much…
Critically less than 1% of title insurance policies ever have a claim filed. Compare that to homeowner’s insurance, where 6% of policies have a claim filed each year.
This sounds like an argument for not buying title insurance, but here is what you are not seeing:
Title insurance companies go to enormous lengths to prevent problems in the first place. Industry expense ratios have averaged 95% for the last 10 years, or 95¢ of every premium dollar spent on prevention.
So what does this prevention work consist of?
- Public record searches going back decades
- Title defect discovery and resolution
- Lien and encumbrance removal
- Legal chain of title verification
American Land Title Association (ALTA) research has shown that 36% of real estate transactions require extensive non-routine title clearance work. More than one out of every three home purchases.
Without this work a routine sounding home purchase can turn into a legal horror story.
Real world title issues range from fraudulent deeds and back tax liens, to boundary disputes and missing heirs to simple mistakes in county record keeping. One of these could easily cost you tens of thousands in legal fees. Or worse, you could lose the property.
Essential Title Insurance Coverage
Not all title insurance policies are created equal.
The standard owner’s policy covers the basics like forged deeds, undisclosed heirs and recording mistakes. But there are some enhancements you should strongly consider adding on:
Enhanced Coverage Options
- Boundary Coverage — Provides a layer of protection for boundary line disputes and encroachments not known during the title search.
- Access Coverage — Ensures you have legal access to your property through existing roadways or driveways.
- Building Permit Coverage — Protects you if previous construction was done without a building permit.
- Mineral Rights Coverage — Protects you from a party that retained rights to the subsurface of the property.
- Post-Policy Forgery Coverage — Protects you against deed fraud that occurs after you own the property.
These endorsements cost several hundred dollars, but you could end up with significant legal expenses later without them.
Standard Policy Exclusions
Here’s something that might surprise you…
Standard title insurance does not cover everything. Common exclusions are as follows:
- Environmental hazards and contamination
- Zoning and building code violations
- Unrecorded easements you should have known about
- Any events after the policy date
- Eminent domain (condemnation)
Knowing this helps you make an informed decision about additional coverages.
Calculating Title Insurance Protection Needs
The amount of coverage on your owner’s policy should be the price you pay for the property.
Why is this important?
Title insurance does not have an inflationary increase in value like your homeowner’s insurance. If you purchase a $300,000 home with $300,000 in title coverage, you remain covered for only $300,000 even if the home value grows to $500,000.
You have two options to compensate for this:
- Buy additional coverage when your home value increases substantially
- Purchase an inflation endorsement which automatically updates the coverage
Most buyers go with option two as it’s simpler and more cost effective.
Title insurance premium amounts usually range between 0.5% to 1% of your purchase price. The premium is higher in more expensive markets. Where states allow regulated rates, the costs are consistent.
But here’s something else to remember…
Title insurance is different than other insurance. Once you buy it, you pay only that one premium. There are no monthly or annual bills and the coverage remains in effect for as long as you own the property.
Getting the Best Value
Shopping for title insurance is not quite like other insurance purchases. Title rates are regulated in many states, which means insurance companies charge the same premium.
The place to save money is by:
- Choosing the right endorsements for your situation
- Negotiating who pays (buyer/seller is often negotiable)
- Bundling policies if getting both owner’s and lender’s coverage
- Timing the purchase (discount for simultaneous issuance when both are purchased)
Discounts are available in some states if you refinance and have had title insurance within a set period of time.
Wrapping It All Up
Title insurance is there to protect you from one of the most financially devastating risks of homeownership — the loss of your property rights due to historical title issues.
The data tells the story. Title insurance claims are rare, but the work that title companies do to prevent them is extraordinary and worthwhile. Industry data reveals title insurers paid out $161.1 million in claims in just the first quarter of 2024.
The bottom line: Title insurance is not optional for serious homeowners. The one time premium paid provides lifetime coverage to protect your ownership rights and your financial investment.
Don’t let hidden title defects put your largest asset at risk. Make sure you understand what your coverage options are and get the protection that is best for your unique needs.
You will thank yourself later for making this one smart financial choice today.
