What Is Title Insurance?

Title insurance is a specialized form of indemnity insurance designed to protect real estate owners and mortgage lenders from financial loss due to defects in a property’s title. Unlike traditional insurance, which safeguards against future risks (such as fire or theft), title insurance protects against claims and defects from the past—issues that may already exist but are unknown at the time of the property transaction.

Whether you're a first-time homebuyer, a seasoned investor, or a commercial developer, understanding how title insurance works—and why it's essential—can help you avoid costly legal battles and protect your property rights.

What Is Title Insurance?

Title insurance provides legal and financial protection against claims or defects that affect the ownership of real estate. These issues may include:

• Clerical errors
• Forgery or fraud in prior documents
• Undisclosed heirs
• Improperly recorded documents
• Unknown easements or encumbrances
• Unpaid property taxes or liens

While a title search is performed prior to closing, not all title defects are discoverable through public records. That’s where title insurance steps in—to shield you against hidden risks that may surface after you’ve closed the deal.

Why Title Insurance Matters

Even if you’ve hired a reputable title company and your attorney has reviewed the documents, not all risks are visible on paper. Title insurance offers a safety net for scenarios that would otherwise cost thousands—or even lead to the loss of your property.

Common Risks Covered Include:

• Unknown Liens: Unpaid debts (taxes, contractor payments, judgments) from previous owners may remain attached to the property.
• Forgery or Fraud: Falsified signatures on deeds or fraudulent transfers in the chain of title can compromise your ownership.
• Clerical Errors in Legal Documents: Minor mistakes in recording, such as incorrect lot numbers or misspelled names, can create major disputes.
• Boundary or Survey Discrepancies: Inaccurate boundary descriptions may lead to encroachment disputes with neighbors.
• Undisclosed Heirs or Previous Spouses: Heirs or ex-spouses of previous owners may assert legal ownership after your purchase.

Explore this Case Study: Resolving a Complex Real Estate Title Dispute to see how hidden defects can become major legal battles.

Types of Title Insurance Policies

There are two primary types of title insurance policies, each serving a different purpose:

1. Owner’s Title Insurance

• Who it protects: The property buyer.
• What it covers: Legal fees, losses, and damages from covered title defects.
• Is it required? Optional but highly recommended. Most real estate attorneys and agents strongly advise purchasing this policy, especially for cash buyers.

2. Lender’s Title Insurance (Loan Policy)

• Who it protects: The mortgage lender.
• What it covers: Ensures the lender has a valid, enforceable lien on the property.
• Is it required? Yes—lenders require this policy to issue a mortgage, but it does not protect the buyer’s equity.

Learn more in Our Real Estate Services: From Contract Review to Closing, which includes guidance on reviewing title commitments and selecting the right policy.

How Title Insurance Works

Here’s what happens behind the scenes:

1. Title Search and Examination

• Before issuing a policy, a title company performs a detailed review of public records, including:
• Deeds
• Mortgages
• Tax records
• Court judgments
• Probate files
• Easements and restrictions
• This title search helps uncover known issues. If significant problems are found, they must be resolved before closing.

2. Issuance of Title Commitment

• After the search, the title company issues a title commitment—a document outlining the terms, exclusions, and any existing issues that must be resolved.

3. Closing and Policy Issuance

• Upon closing, once any issues are cleared, the buyer and lender receive their respective title insurance policies.

4. Post-Closing Protection

• If a title issue arises after closing—such as an unknown heir claiming ownership or a previously undisclosed lien—the insurance company will:
• Cover attorney fees and court costs associated with defending your ownership
• Pay for settlements or judgments, up to the policy amount

Real-World Example

Scenario: You buy a home and later receive a notice from the county that a $20,000 mechanic’s lien was filed by a contractor against the previous owner, but never recorded properly.

Without title insurance: You could be liable for the debt or lose your home in a foreclosure action.

With title insurance: The insurer investigates and, if the claim is valid, covers the lien or defends your title in court—saving you time, money, and stress.

Cost of Title Insurance

Title insurance is a one-time premium, paid at the time of closing. The cost depends on:

• Property purchase price
• Loan amount
• State and county filing fees
• Underwriting risk factors

Average Cost Range:

• Owner’s Policy: $500 – $2,000 (varies by location and property value)
• Lender’s Policy: Often bundled into loan closing costs

In most states, rates are regulated, and many companies offer discounts for simultaneous issuance (when both policies are bought together).

Skipping title insurance might save you a few hundred dollars now—but could cost tens of thousands later in legal fees or lost property.

What Title Insurance Doesn’t Cover

While title insurance offers strong protection, it's not a blanket policy. Common exclusions include:

• Zoning and land use violations
• Environmental hazards
• Future improvements or construction issues
• Issues arising after the closing date
• Known title defects disclosed before closing (unless specifically insured)

Conclusion: Is Title Insurance Worth It?

Absolutely. Title insurance is not just a closing cost—it’s a long-term investment in your peace of mind. In a complex legal landscape where past errors, omissions, and fraud can cost you dearly, title insurance serves as a protective shield against the unexpected.

Whether you're buying your dream home or a commercial investment property, title insurance ensures that your rights to the property are fully protected—and stay protected—long after the deal is done.