5 Common Misconceptions About Title Insurance

Feb 1, 2022

title insurance document

5 Common Misconceptions About Title Insurance

If you’re reading this, there’s a good chance you’re interested in buying a home and you’re trying to gather more information about title insurance. Title insurance can be a confusing concept with so much information out there, especially in the midst of purchasing a home (so much paperwork)! 

At the end of the day, title insurance is crucial to protect you as the buyer, as well as the seller of the home. Here are 5 common misconceptions about title insurance to look out for when researching.

Title Insurance Doesn’t Offer Much Protection

Without knowing the issues upfront, it can be hard to bite the bullet and pay for title insurance. 

But, it’s important to remember that Title Insurance was created with protecting YOU in mind. Title insurance can cover everything from liens on a property, claims by a family member, forged signatures, and much more. 

How Does it Work?

When you begin the home buying process, a title search will be performed. A title search is a deep dive into the history of the property and examines every public record on the home to reveal any issues (like the ones listed above) that could affect your right to ownership.

Title Insurance Only Protects The Buyer

One major misconception to look out for is that there is only one type of title insurance provided: an owner’s policy. While an owner’s policy is crucial and protects your right to ownership of the property, there is another type of title insurance that is just as important: a loan policy.

What is a Loan Policy?

If you are financing the home you’re going to buy with a mortgage policy, it’s highly likely that the lender will require you to obtain a loan policy (also known as a lender’s policy). A lender’s policy is meant to protect the mortgage company until your home loan is paid completely. 

You Have to Pay Monthly for Title Insurance

Ugh, another monthly bill? When will they end? 

Before you ask another question, it’s important to clarify that you will not have to pay a monthly or yearly premium for your title insurance. It’s understandable to think this, as every other insurance is a monthly expense, however, title insurance is a one-time upfront payment that you pay at closing.

Paying In Cash = No Title Insurance

If you’re paying for your home in cash, congratulations, but that doesn’t mean you don’t need title insurance.

Remember when we discussed the two types of title insurance (owner’s policy and lender’s policy) above? Well, you’re right that you won’t need lender’s insurance because you won’t be financing, but that doesn’t mean you don’t still need an owner’s policy.

An all-cash payment won’t protect you from potential title defects and damage, though, we wish it would! 

I’ll Never Need Title Insurance

If you’re making a purchase as big as a home, it’s crucial that you protect yourself from potential losses due to title defects. If you’d insure your phone, why not the place you’ll spend most of your time?

If you’re a numbers person, check out this statistic: In 2018, the title industry spent over $615 million compensating policyholders’ losses due to covered title defects. 

Heights Title Can Help

We understand that there is a ton of information out there regarding title insurance and that you may hear conflicting details on the daily from friends, family, or colleagues when you’re in the home-buying process. For those reasons and more, Heights Title is dedicated to helping you understand title insurance and the home-buying process in its entirety. 

This material is provided as a courtesy and for educational purposes only.  Please consult your title professional for specific information regarding your situation.

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