Whether you’re buying or refinancing a home, there’s an optional insurance policy that most people don’t want to buy called owner’s title insurance. But going without this policy can be dangerous for your finances, according to money expert Clark Howard.
In this article, we’ll look at what owner’s title insurance is, why you need it and how much a policy typically costs.
Understanding owner’s title insurance
Buying a home is a dream come true for many Americans. But if someone comes along and contests your ownership of the property, that dream can quickly turn into a nightmare.
That’s where owner’s title insurance comes in handy…
Table of contents
- What is owner’s title insurance?
- How much does owner’s title insurance cost?
- Who pays for owner’s title insurance?
- Where should I shop for owner’s title insurance?
1. What is owner’s title insurance?
Owner’s title insurance is a policy you take out on the deed of your home. It protects you from someone popping up out of the blue and challenging your ownership of a property because of an event involving a previous owner.
This is not like your home or auto insurance coverage. With those policies, you buy protection for future events that may happen while your policy is in force. But with title insurance, you’re buying coverage for potential title problems that are already baked in the cake — even if you don’t know what they may be at the present time.
Unfortunately, there is a lot of confusion surrounding title insurance in general. That’s in part because there are actually two kinds of title insurance:
- Lender’s title insurance policy
- Owner’s title insurance policy
“People get the wrong impression that when you buy a home, you’re paying a premium for title insurance and that protects you,” Clark says. “No! That insurance just protects the bank. Don’t rely on the title insurance the lender buys; you need your own.”
Lenders require you to purchase lender’s title insurance. But a lender’s title insurance policy only safeguards the money that the bank lent you for your mortgage or refinance. It does not protect you as an individual homeowner, nor does it protect any equity you have in your home.
Owner’s title insurance, on the other hand, is the only thing that may offer protection if someone files suit with a claim to the deed. It’s a very good idea to buy this policy even though you are not required to do so.
What exactly does owner’s title insurance protect you against?
Potential claims against your home’s title could date back to before your purchase of the property. And if you don’t have title insurance, you’re out of luck.
So that prompts the question: What are the kinds of claims that could arise?
Some common examples include:
- Disagreement about the property lines
- Disputes about whether or not the seller had a proper right to sell the property to you
- Discovery of undisclosed liens or lawsuits against the property
Clark’s brother worked as a lawyer in real estate title issues for many years and would often tell him about problems regarding disputes about proper ownership and what rights the owner has.
“There was a title case a few years ago in which residents of an entire community almost lost their homes. A woman claimed she was part owner of a tract of land that later was divided to form a subdivision. She sued the homeowners in the community for a partial share of the land,” Clark says.
“The woman eventually agreed to a settlement, but the homeowners spent several thousand dollars in legal fees to defend their property rights. Owner’s title insurance not only protects you from loss but also requires the title company to defend you if your ownership is ever challenged.”
2. How much does owner’s title insurance cost?
We pulled quotes for several sample owner’s title insurance policies on homes across a variety of common price points. All quotes are from direct writer Title Forward on single-family homes around the country.
|City||Sale price||Down payment||Loan amount||Cost of owner’s title insurance|
|Colorado Springs, Colorado||$250,000||10%||$225,000||$1,108|
|Union, New Jersey||$350,000||20%||$280,000||$323|
Most quotes from Title Forward include a breakout of the cost for both lender’s title insurance and owner’s title insurance. The quotes above reflect only the owner’s title insurance — not the lender’s title insurance — before all fees.
Title search, title examination, notary fee and other closing fees are all additional costs.
3. Who pays for owner’s title insurance?
The question of who pays for owner’s title insurance varies by state and sometimes from county to county. In about 20 states, it’s the seller’s responsibility and in another 20 or so states the responsibility falls to the buyer.
Then there are a handful of states where the question of who pays for owner’s title insurance is either negotiable or the cost is divided equally between both parties.
A local title insurance company will be able to give you the final word on how it’s handled in your area. Pick up the phone and ask them — they’re sure to have the right info for you! Real estate agents are another knowledgeable resource on this topic.
4. Where should I shop for owner’s title insurance?
Direct sellers of owner’s title insurance tend to offer the best quotes. Here are a few options to check:
- Radian Title Direct
- Title Forward
- One Title National Guaranty
Radian Title Direct sells title insurance directly in 39 states and Washington, D.C. The only states where it’s not licensed to do business are Alaska, Colorado, Hawaii, Idaho, Iowa, Maine, Michigan, New Hampshire, New Jersey, Vermont and Wyoming.
Title Forward also sells direct, but only serves Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, New Jersey, Pennsylvania, Tennessee, Texas, Virginia, Washington D.C., and Wisconsin.
One Title National Guaranty, meanwhile, quotes solely for New York is expanding slowly into New Jersey. So it may be of more limited use than Radian or TitleForward, both of whom have a more national focus.
Owner’s title insurance protects you if your property rights are challenged. Clark thinks everyone should buy it even though it’s not required like lender’s title insurance.
Having a policy means you’ll have an insurer standing there by your side if someone challenges your home’s title.
“There have been a few cases where title insurers have tried to deny responsibility, but I think those are exceptions and I still strongly recommend that you buy it,” Clark says. “Without it, you have no line of defense.”
Meanwhile, while you’re thinking about insurance and your home, please check out our list of the best and worst home insurance companies.