There are two types of title insurance, lender’s coverage and owner’s coverage. Lender’s coverage protects the lender in the event his or her interest in the property is threatened by an unpaid lien or encumbrance or by a contested title to the owner. Lender coverage is required on most mortgage loans.
Owner’s title insurance is optional. Owner’s coverage is the cheapest insurance a buyer will ever buy. Protects the buyer’s interest in the property for as long as he owns it. If someone contests the buyer’s title or if there are liens that should have been discharged before closing, the title insurance company will defend the buyer’s title at no cost to the buyer.
Sometimes, at closing, buyers will be tempted to opt out of buying the owner’s portion of the title to save a few hundred dollars. Many times, the loan officer or real estate agent will even encourage the buyer to forgo purchasing this vital lump sum insurance.
We’ve all heard the saying “penny wise and pound foolish.” It means that some people will do anything to save a few dollars today only to end up paying much more later. Any buyer who chooses not to purchase owner’s coverage is being both sensible and foolish. Owner’s coverage, unlike most other insurance, involves a single premium. The amount of the premium is based on the value of the property and may vary slightly between title companies. As mentioned above, the coverage is valid as long as the buyer owns the property.
Most title insurance companies have a simultaneous issue option. If a buyer chooses to purchase the insurance at closing, they will receive a discount on the lender’s policy. Therefore, buyers should be sure to ask the closing company or attorney what the simultaneous issuance rate is for the title insurance company through which they write their policies. Keep in mind that if a buyer decides not to purchase owner’s coverage, he or she will be required to pay the lender’s full policy premium.
Title insurance companies also offer reissue rates for refinances. Reissue rates allow the borrower to pay for coverage on the difference between the value of the lender’s original policy and the current loan amount.
Depending on the internal procedures of the title company or closing attorney, the buyer will receive their owner’s policy at the closing table or by US mail a few weeks after closing. The owner’s policy should be kept in a safe place along with the property deed, as it is the only original. In most states, attorneys and title companies are only required to keep records for seven to ten years. So if a problem arises years later, the attorney or title company may not have a copy of the title insurance policy because they may have already disposed of the closing file.
If a claim needs to be filed, the title insurance company contains the information needed to begin that process. Be prepared to provide the title company with a detailed explanation of the claim and any supporting documentation.
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