Title Insurance

Title insurance is a one-time premium protecting against defects in a property's ownership history: unpaid liens, forged deeds, missing heirs, survey errors, and mistakes in the public record. Two policies exist at closing: the lender's policy, required by the mortgage and covering the loan balance, and the owner's policy, optional and covering the purchase price. The owner's coverage runs for as long as the owner or their heirs hold the property.

The premium is paid once at closing, commonly 0.5% to 1% of the price, and the policy runs forever. There is no annual renewal, which makes it the only insurance in the transaction that does not repeat. The title search is the diligence the premium sits behind: the examiner reads the public record for the defects. The policy is the backstop for the ones the search misses.

The machinery runs at closing. The title company searches the public record: deeds, liens, judgments, easements, and the chain of ownership back decades. The search clears the defects it finds, and the policies are issued against the ones it misses: the lender's policy covers the loan balance and declines as the loan is paid, and the owner's policy covers the full purchase price and does not decline.

The claims are rare and the coverage is the point. Roughly 1 in 250 owner policies files a claim, but the covered defects are the unrecoverable ones: a forged deed in the chain, a missing heir from a 1970s estate, a mechanic's lien from a contractor the seller never paid. The policy pays the legal defense and the loss, which is the coverage no homeowner can self-insure.

The owner's policy is the optional line most buyers accept by default or skip. It is commonly 0.3% to 0.5% of the price on top of the lender's, and the reissue discount applies when the seller's policy is recent. The negotiated split, who pays the owner's policy, varies by state and is a line in the offer. The one-time premium is the price; the forever coverage is the product.

Title insurance is the only insurance at the closing table that does not renew, and the owner's policy is the optional line worth the few hundred dollars. The lender's policy protects the bank; the owner's policy protects the buyer, and the difference is the entire point. The claims are rare; the covered defects are unrecoverable without it.

I watched a colleague named Brent (yes, that Brent) buy a $340,000 house, decline the $1,400 owner's policy to save the cash, and meet a contractor's lien from the seller's unpaid renovation two years later. The lien was $9,000, the legal defense was another $6,000, and the lender's policy covered none of it because the loan balance had fallen below the lien. The owner's policy was the $1,400 he declined twice.

The highest-leverage thing most buyers can do is take the owner's policy and ask for the reissue discount, because the premium is one-time and the covered defects are the unrecoverable ones. Price the closing lines with the home closing cost calculator, read the escrow side in the escrow entry, and check the total in the closing costs entry.