A title insurance policy is similar to other types of insurance policies you would buy, such as car insurance, homeowner’s insurance, or health insurance. They cover for risks, defects, or damages to something in the future, in this case the property title. A title insurance policy is a one-time premium that covers you as long as you own the property. The policy is sold by an insurer certifying that if a title issue arises on a property, they will pay to correct it or pay the maximum the policy was for. Title insurance does not guarantee repair of a title defect or cloud on title, but it does provide financial compensation for the policyholder if a defect is discovered in the future.
So what goes into a title insurance policy and what does it cover? First, a title search must be run on the property to search for existing liens, mortgages, encumbrances, or clouds. If any are found during that title search they will be excluded from coverage and be listed on page one of that title insurance policy. The title insurance policy would cover if something is hidden on the property, for example, a forged signature on a deed fifty years ago, or claims against the property that the title search missed.
After the initial title search is complete a few more reports are analyzed. Usually the title insurance company will require a property survey to find out where the boundaries of the property actually are. Next, a credit report on the current or prior owner will be run to make sure there are no pending judgments or pending lawsuits against the owner that could turn into a lien against that property. Depending on the property and the insurer, some other types of research might be done additionally; otherwise the insurer will complete the policy.
The turnaround time for a title insurance policy is typically around 30 days. This includes the time it takes to get the underwriting and background checking complete on that title insurance policy.
The cost for a title insurance policy varies. It is based on the purchase price of the property and it is based on whether or not the property is being financed. If the property is being financed it will most likely cost a little extra to cover the lender in addition to covering the owner. However, the cost is essentially based on the selling price of the property which is usually going to be a few hundred dollars per thousand. For example, if the property was $500,000 then the policy could be a $1,500 or $2,000 premium altogether. Yet, keep in mind that the title insurance company will probably want to do the closing for that transaction so you may also incur some closing costs or escrow fees on top of the title insurance policy.
When choosing a title insurance company and insurer, be sure to do your due diligence beforehand. There have been many cases of title insurance fraud in the United States. For example, the article by Moe Bedard titled FBI Charges Pennsylvania Lawyer in Title Insurance Fraud Scheme describes a case in which Susan Kevra-Shiner was recently charged for fraudulently offering title insurance policies to approximately 76 homeowners and/or lenders and receiving $72,000 from fraudulent title insurance premiums.
If you would like more information regarding title insurance policies, check out the following videos: What Goes Into a Title Insurance Policy, Title Search vs. Title Insurance, Insurance Underwriting Standards and Title Searches.