When buying a home, most people get homeowners insurance for protection against unexpected events like natural disasters. But homeowners insurance doesn’t protect you from unexpected challenges against the ownership of your property.
From real estate fraud to liens, there are many claims that can put your home ownership at risk. Although it’s less common than homeowners insurance, owner’s title insurance is equally important when it comes to protecting your property.
In this article I’ll cover common questions about owner’s title insurance, including:
- What Is Title Insurance?
- What Does Owner’s Title Insurance Cover?
- Who Pays for Owner’s Title Insurance?
- How Much Is Owner’s Title Insurance?
This article was updated in November 2023 and I review it annually.
What Is Title Insurance?
When someone buys a home, the title is a legal document that serves as proof of ownership. Title insurance provides financial protection against losses related to a property’s title.
Once you buy a home, you become responsible for the property. If a previous owner had unresolved debts, you could be responsible for those debts too. This is why title insurance is important. Although title searches are performed as part of the home buying process, sometimes issues are missed or not included in the public records for a property.
Title insurance is your best defense if you unknowingly buy a home with previously unresolved debts, liens or other claims that could threaten your ownership of the property. Regardless of how many owners a home has had, title insurance will cover any claims or losses from before your policy’s start date.
Even if you’re moving into a new construction, it’s worth protecting yourself with title insurance. Challenges can range from an ex-spouse making claims against the title of a previously owned home to suppliers filing a lien against a new construction to recover pay from developers.
There are two different types of title insurance: lender’s title insurance and owner’s title insurance. If you have a mortgage, then your lender likely required you to purchase lender’s title insurance before you closed on your home. Money expert Clark Howard warns:
“People get the wrong impression that when you buy a home, you’re paying a premium for title insurance and that protects you. No! That insurance just protects the bank.”
The Difference Between Owner’s Title Insurance and Lender’s Title Insurance
Lender’s title insurance is also called loan title insurance. As the name suggests, this type of policy only protects your lender.
Clark has heard lots of stories about home title cases from his brother, who worked as a lawyer in real estate. “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 recalls.
In this situation — with just a lender’s title insurance policy, homeowners have no individual protection or protection for any equity in their homes.
“The woman eventually agreed to a settlement. But the homeowners spent several thousand dollars in legal fees to defend their property rights.”
To protect yourself, you’ll need an owner’s title insurance policy. This is the kind of title insurance policy that covers claims that affect the homeowner.
“Owner’s title insurance not only protects you from loss, it also requires the title company to defend you if your ownership is ever challenged.”
Owner’s Title Insurance vs. Home Title Lock
When it comes to title protection for homeowners, we get a lot of questions about Home Title Lock and whether it’s worth having. I’ve written about what Home Title Lock covers and how much it costs here. But spoiler alert: you don’t need Home Title Lock.
The key difference between owner’s title insurance and Home Title Lock is this: an owner’s title policy is insurance and offers you financial protection while Home Title Lock is simply a title monitoring service.
This means that if action is taken against your title, Home Title Lock will be alerted and pass any alerts on to you. But you won’t have financial protection against any claims. On the other hand, having owner’s title insurance means you can receive financial support from your insurer.
I’ve seen some Home Title Lock ads that suggest fraud is a major threat to your title and you’re at risk of someone stealing it from you. Again, though, it’s important to remember that title monitoring services won’t stop these events from happening. It will only sound the alarm. But also, the good news is it’s extremely difficult and rare for someone to try and steal your title via fraud.
Challenges against a title are typically related to settling legitimate disputes. But if you’re still worried that someone will steal your title, Clark recommends watching out for a few things.
“If you start getting weird mail from lenders and things like that, you know there’s monkey business going on, and you need to pay very close attention to that,” he says.
What Does Owner’s Title Insurance Cover?
From legal fees to monetary claims or losses, an owner’s title insurance policy covers the costs to protect you against challenges to your home ownership. But owner’s title insurance works a bit differently than other forms of home insurance when it comes to what’s covered. Instead of offering protection against future events, owner’s title insurance only covers claims or losses related to events from before you purchased the home.
A few examples of events you could be protected from include:
- Disagreements about property lines
- Disputes about whether the seller had proper rights to sell the property to you
- Undisclosed liens or lawsuits against the property
- Unpaid debts such as homeowner’s association (HOA) fees
Who Pays for Owner’s Title Insurance?
If you have a mortgage, it’s likely that your lender required you to pay for lender’s title insurance. When it comes to owner’s title insurance, coverage is optional. But that doesn’t mean it isn’t important. The good news is you might already have it.
During closing, sellers sometimes cover the cost of owner’s title insurance as a bonus incentive for buyers to purchase their property. The cost can also be negotiated between the buyer and seller if the seller isn’t including a policy outright in the sale. And if a seller isn’t willing to pay at all, buyers can still choose to purchase a policy on their own.
If you’ve already closed on your house and aren’t sure whether you have owner’s title insurance, locate your closing documents. I called several companies offering owner’s title insurance to ask about getting coverage well after closing on a home. Most companies said to first make sure you don’t already have it.
Check your Settlement Statement or Closing Disclosure for any coverage info. And if you can’t find your closing documents, contact your lender for help getting a copy. If you have a real estate attorney or agent, they can also be a great resource to help you find out.
And if it turns out that don’t have owner’s title insurance after closing, you’ll need to contact your lender, any agents and/or local title insurance companies for the final word on how to handle getting coverage in your area. Don’t wait until after you discover there’s any existing issues with your title though! Pick up the phone, call around and ask how to get coverage after closing — they’re sure to have the right info for you.
How Much Is Owner’s Title Insurance?
Unlike other types of insurance policies that have monthly or annual premiums, a title insurance policy has a one-time cost for coverage. Once the policy has been purchased, you’re covered for as long as you own your home.
Owner’s title insurance policy costs vary depending on where you live and whether you purchase coverage along with a lender’s policy. Rates typically start around 0.5% of your home’s purchase price.
I used the Title Insurance Calculator on the National Title Company’s website to get a few estimates for owner’s title insurance. Here’s what I found:
|Property Purchase Price
|Owner’s Title Insurance Cost
Based on these estimates, owner’s title insurance costs about 0.4% to 0.6% of a property’s sale price for homes between $150,000 and $1M. As the property price increases, the percentage estimate for owner’s title insurance slightly decreases.
Title issues don’t always show up during searches when you’re about to buy a house. An owner’s title insurance policy protects you if — down the line — your property rights are challenged by unexpected issues.
Even though it’s not required, Clark thinks everyone should buy an owner’s title insurance policy. That way you’ll have an insurer standing by your side if your home’s title is challenged.
“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.”