There are two types of title insurance, lender’s coverage and homeowner’s coverage. Lender’s coverage protects the lender in the event that the lender’s interest in the property is threatened by an unpaid lien or lien or by a challenge to the owner’s title. Lender coverage is required on most home 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 they own it. If someone disputes the buyer’s title or there are liens that should have been paid off 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 share of title to save a few hundred dollars. Many times, the loan officer or real estate agent will even encourage the buyer to forego the purchase of this vital single payment 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 in the future. Any buyer who chooses not to purchase homeowner’s coverage is being 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 can vary slightly between title companies. As mentioned above, the coverage is valid for as long as the buyer owns the property.
Most title insurance companies have a simulcast option. If a buyer chooses to purchase the insurance on closing day, they will receive a policy discount from the lender. Therefore, buyers should be sure to ask the closing company or attorney what the simulcast rate is for the title insurance company through which they write their policies. Keep in mind that if a buyer decides not to purchase homeowner’s coverage, they 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 actual amount of the loan.
Depending on the title company’s or closing attorney’s internal procedures, the buyer will receive their homeowner’s policy at the closing table or by US mail within weeks of closing. The homeowner’s policy should be kept in a safe place along with the deed to the property, as it is the only original. In most states, attorneys and title companies are only required to keep records for seven to 10 years. Therefore, 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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