Did you know that there are 2 types of title insurance? While owner’s and lender’s policies serve different purposes, both can provide comprehensive protection for your largest investment. Here’s how to decide if you need both.

What is Title Insurance?

Title insurance protects against financial loss due to defects in a property’s title. Defects can include unpaid taxes, liens, fraud, forgery or errors in public records that might lead to challenges of legal ownership. Unlike other insurance types, title insurance provides coverage for past events rather than future risks.

Lender’s Policies

A lender’s policy is almost always required by the lender as a condition of their loan. It protects the lender’s financial interest in the property until the mortgage is paid off. The buyer usually pays for the mortgage policy during closing, although it doesn’t protect the homeowner; it exclusively covers the lender’s financial investment.

Owner’s Policies

On the other side of the coin is an owner’s policy, which protects the homeowner’s financial interest in the property. Although optional, it’s highly recommended to have. In many cases, the seller pays for the owner’s policy as part of the closing costs, but this can vary depending on your location. An owner’s policy protects against title defects, legal disputes and financial losses related to ownership issues.

Do You Need Both?

Having both policies is advisable. The lender’s policy only safeguards the lender. If a title issue arises, you could still face a financial burden to clear the title for yourself without an owner’s policy. Some homebuyers believe that they can rely on a title search alone to unearth any such errors, but hidden issues like forgery, undisclosed heirs or clerical errors could still show up later on. An owner’s policy shields you from these risks. An owner’s policy remains in effect as long as you own the property, so it’s well worth the cost.

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