A title insurance policy protects you against financial losses due to claims against the title not discovered when you purchased the house. It also protects you against defects in the title when you sell your house. When you buy your house, you can purchase title insurance for a one-time fee that covers you for your lifetime — so it covers losses that may arise even long after you sell the property.
If you are working with a lender, they will require you to purchase a Lender’s Title Insurance, or a Loan Policy, which only insures your lender’s deed of trust on the property you are buying. Although you are paying for the lender’s policy, you are not protected. To protect you from title claims, you have to purchase an Owner’s Title Insurance from the Title company that you’re working with for your home purchase. There are two types of owner’s coverage: standard or enhanced.
Standard Owner’s Title Insurance Policy
The standard policy protects your equity from various title defects, as well as the cost of any legal defense of your title. The amount of coverage is equal to the purchase price of the property. The standard policy protects you against:
- Someone claims to own an interest in your property, including undisclosed heirs.
- Issues related to an improperly signed document or a document recorded inaccurately in the county recorder’s office.
- Someone claims rights in your property arising from false impersonation or forgery.
- Someone claims a lien on your property, including an unpaid lien for real estate taxes, a deed of trust, a judgment, a mechanic’s lien, or an unpaid homeowner’s association lien.
Your Owner’s Policy will also pay for the cost of defending you if someone sues you over a covered matter.
Enhanced Owner’s Title Insurance Policy
For a slightly higher premium, you also have the option of purchasing an Enhanced Title Policy, which provides even greater protection beyond the standard policy. The enhanced policy protects you against:
- Lack of physical access to your home.
- Loss from a violation of a subdivision law.
- Loss from a lack of proper building permit, or a zoning law violation, that forces you to remove or remedy the existing structures.
- Loss due to encroachment or easement.
Your contact at the Title company will be able to provide you with the premium amount for the Standard Policy vs. the Enhanced Policy. They can also help you decide which policy is right for you. If you need to save some money at closing, you have the option of not buying title insurance and give up the protection.