Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.

The following focuses on title insurance as issued in the United States

Comparison with other insurance

Title insurance differs in several respects from other types of insurance. Where most insurance is a contract where the insurer indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance attempts to detect, prevent, and eliminate risks and losses caused by title problems which have their source in past events. Title companies attempt to achieve this by searching public records to develop and document the chain of title and to detect whether there are any adverse claims on the subject property. If liens or encumbrances are found, the insurer may take steps to fix them (for example, by obtaining a release of an old mortgage or deed of trust that has been paid off) before issuing the title policy or may specifically "except" those items from coverage. Title plants are sometimes maintained to index records geographically, with the goal of reducing claims.

Types of policies

Standardized forms of title insurance exist for owners, lenders, and for construction loans.

Owner's policy

The owner's policy insures a purchaser that the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It covers losses and damages suffered if the title is unmarketable (i.e., if the title can not be legally sold and conveyed to another party or if the property is "unmarketable"), for example if an interest in the property is found to belong to someone else, if there is no access to the land (if this coverage is provided), or if there is some other defect on the title. An owner's policy specifically lists what interest in the property is insured as of what effective date. The policy also contains various standard exclusions to coverage and also specific exceptions to coverage, based on documents that have been recorded against the property at some point in the past, that the title company is unwilling to insure.

The policy limits of the owner's policy is typically the purchase price paid for the property. As with other types of insurance, coverages can also be added or deleted with an endorsement. There are many forms of standard endorsements to cover a variety of common issues. The premium for the policy may be paid by the seller or buyer as the parties agree; usually there is a custom in a particular state or county which is reflected in most local real estate contracts. Consumers should inquire about the cost of title insurance before signing a real estate contract which provide that they pay for title charges. A real estate attorney, broker, escrow officer (in the western states), or loan officer can provide detailed information to the consumer as to the price of title search and insurance before the real estate contract is signed. Title insurance coverage lasts as long as the insured retains an interest in the land insured and typically no additional premium is paid after the policy is issued

Lender's policy

The lender's policy is separate from the owner's policy. This type of policy insures the validity and enforceability of the lien of the lender's mortgage or deed of trust. The lender's policy protects the lender for the amount of money lent against the property. Coverage under the lender's policy lasts as long as the loan secured by the mortgage or deed of trust has a balance. The title insurer's risk under a lender's policy is generally less than that of an owner's policy; as a result, insurers typically charge lower premiums for a lender's policy than would be charged for the same dollar amount of coverage on an owner's policy.

Source: Wikipedia