Title is the legal right to ownership and possession of your home or other property. Title insurance provides limited protection against problems that could affect your ownership rights which were unknown at the time of property purchase. Issues that might arise include unknown liens on the property, unpaid debts of a prior owner, or some defect in the title transfer such as a forgery. Title insurance premium is paid once and provides coverage for as long as you own your property. Lenders typically require title insurance as a loan condition when real estate is involved.
Though it’s classified as insurance, much of the title premium actually pays for research and examination of public records related to your title. Before selling a policy, a title company checks for problems by looking at public records, court judgments, tax records, liens, encumbrances, and maps related to your property. This process is largely automated now. Most issues with the title come up during this process and are addressed prior to purchase. The insurance component then covers specified title problems that arise later which were not discovered. Problems like that are rare, especially for residential property, and title insurers pay out less than 5% of premium in claims. Finally, title premium covers the closing process on a real estate purchase which usually occurs at a title agent’s office.