Overview of Owner’s Title Insurance
Owner’s title insurance — sometimes referred to as homeowners title insurance — is generally an optional purchase in most jurisdictions, unlike the lender’s title insurance policy that a mortgage provider typically requires. The lender’s policy is designed to address the lender’s financial interest in the property. The owner’s policy is designed to provide coverage to the property owner, subject to policy terms, conditions, and exclusions.
What Is Owner’s Title Insurance?
Owner’s title insurance is a specialized form of coverage that addresses risks related to the legal ownership history of a property. The owner’s title policy is also sometimes referred to as deed insurance. It is distinct from homeowners’ insurance and hazard coverage.
How It Generally Works
An owner’s title insurance policy is designed to provide coverage for certain matters affecting the title that may not have been identified at the time of purchase. These may include items such as recorded liens, discrepancies in records, or other matters in the property’s ownership history. A title agent or title insurance company typically conducts a review of publicly available records prior to closing. The policy may then provide coverage, subject to its terms, for certain matters the review did not identify.
Coverage Interest
What does owner’s title insurance cover? The owner’s policy is issued for the benefit of the property owner, not the lender. If a covered matter arises, the policy may provide for legal defense costs and may compensate for financial losses, subject to the policy terms and conditions. The owner’s and lender’s policies are separate coverages with different coverage interests.
Owner’s Policy vs. Lender’s Policy
The lender’s policy is designed to address the lender’s investment interest but does not provide coverage for the owner’s equity. Who pays for owner’s title insurance varies by state, local custom, and negotiation reflected in the purchase agreement. A new lender’s policy is typically required in connection with a refinance, but a refinance does not generally extend or replace any existing owner’s coverage.
What Does Owner’s Title Insurance Cover?
Owner’s title insurance is designed to address certain matters related to the legal ownership of the property. Coverage is subject to the specific policy terms, conditions, and exclusions.
Recorded Liens and Encumbrances
Previously unidentified liens existing as of the policy date are among the matters that may be addressed by an owner’s title insurance policy. These may include recorded liens, unreleased interests, or other encumbrances that attach to the property. The policy may provide coverage for certain associated losses, subject to its terms.
Ownership-Related Matters
An owner’s title insurance policy may also address matters involving challenges to ownership, such as discrepancies in records or other items affecting the chain of title. These matters may be complex to resolve. The policy may provide for legal defense and may cover losses, depending on the policy terms.
Other Chain-of-Title Matters
Certain matters involving irregularities or discrepancies in the chain of title may be covered under an owner’s title insurance policy, subject to the policy terms, conditions, and exclusions.
Common Exclusions
Known Matters
Matters disclosed or identified during the title review prior to the policy being issued are generally not covered. Known matters are typically addressed before closing or listed as exceptions on the policy schedule.
Physical Property Conditions
Owner’s title insurance does not address the physical condition of the property. Structural, environmental, and similar concerns fall outside the scope of title insurance. Title insurance is focused on matters related to the legal ownership of the property.
Duration of Coverage
One-Time Premium
An owner’s title insurance policy generally remains in effect for as long as the insured or the insured’s heirs maintain an ownership interest in the property. The premium is typically paid once at closing, with no renewals or recurring charges.
Coverage and Heirs
The coverage typically extends to heirs, subject to the policy terms. If the property transfers through inheritance, the ownership interest may generally still be covered under the original policy, depending on the circumstances and the specific policy language.
Costs and Fees
Owner’s Title Insurance Cost
The cost of an owner’s title insurance policy varies by state, the property’s purchase price, and the specific title insurance company. Premiums commonly range from approximately 0.5% to 1% of the purchase price. However, some states regulate title insurance rates, so pricing may differ by jurisdiction.
One-Time Expense
The premium is a one-time fee paid at closing, with no ongoing costs or renewals. It typically appears as a line item among closing costs on the Closing Disclosure.
Additional Context
A title review is designed to identify items of record, but no review of publicly available records can identify every potential matter. An owner’s title insurance policy may provide coverage for certain matters not identified during the review, subject to the policy terms, conditions, and exclusions. Whether owner’s title insurance is worth it is a decision that depends on the transaction, location, and individual circumstances.
