Title insurance
A policy that protects a property owner or mortgage lender against covered losses from title defects, liens, encumbrances or ownership claims that existed before the policy date but surfaced later. An owner's policy protects the owner; a lender's policy protects only the lender. It is generally paid once, at purchase or refinancing.
Also called: lender's policy, owner's policy, title
When title insurance shows up on a closing statement, it is protecting someone's ownership of the property, not the house itself. If a forged deed, an unpaid lien or an unknown heir surfaces after you buy, a covered claim can pay the loss and the legal costs of defending the title. Which policy you hold decides who is protected: a lender's policy pays the lender, and only an owner's policy pays you. Fire, theft and other damage to the home belong to homeowners insurance.
How the two policies pay, with real numbers
Title insurance covers past title problems that come up after you buy or refinance, and it is an indemnity: it pays covered losses up to the policy amount, according to the NAIC's title insurance overview (opens in a new tab). Take an illustrative purchase at $400,000 with an $80,000 down payment and a $320,000 mortgage. The owner's policy is written for the price and the lender's policy for the loan. Then a covered title problem costs $75,000.
Hover or tap a row to highlight it.
| Item | Owner's policy | Lender's policy |
|---|---|---|
| Policy amount | $400,000 (purchase price) | $320,000 (mortgage) |
| Who it protects | The owner | The lender only |
| Pays the owner for the $75,000 loss | Up to $75,000, before exclusions, conditions and other limits | $0 |
| Limit remaining after the payment | $400,000 − $75,000 = $325,000 | Declines as the loan is paid down |
The two amounts are never added together to measure your protection. If you bought only the lender's policy, the lender could be protected on the same defect while you carried the loss and legal costs yourself. The figures are illustrative, not an average price.
Policy types, amounts and what each changes
A title premium depends on the state's rate system, the coverage type, the policy amount, any endorsements and separately charged title services. The choices you meet at closing:
- Owner's policy. Usually issued for the purchase price, it protects the owner and generally stays in effect while you keep an ownership interest. Later increases in the home's value do not raise the limit on their own.
- Lender's policy. Usually issued for the mortgage amount, it protects the lender. Coverage declines with the loan balance and ends when the mortgage is paid off, the property is sold or the loan is refinanced.
- Standard or enhanced owner's policy. The enhanced version adds coverage for certain risks and costs about 20% more than a standard owner's policy, according to the NAIC, though availability and pricing vary by state and insurer.
- Endorsements. These add or change coverage for specified risks; some carry no charge and others add a fee.
- Reissue, refinance or concurrent rates. A prior policy on the property, or buying owner's and lender's coverage together, can qualify for a discount in some jurisdictions.
- One-time premium. Title insurance is generally paid once at purchase or refinancing rather than renewed each year.
Rates are regulated state by state. California requires title insurers to file rates and forms with the Insurance Commissioner, according to the California Department of Insurance (opens in a new tab), and Texas promulgates statewide rates and forms in its Title Insurance Basic Manual (opens in a new tab).
Where you see the term
Title insurance is a separate real estate policy, not a coverage section inside an auto, homeowners, condo or renters policy. You meet it on a purchase or refinance quote, in the title commitment, preliminary report or binder, in the closing disclosure, and later in the issued owner's or lender's policy and any endorsements. It also appears in commercial real estate closings and title claim letters. A commitment or preliminary report is not the final policy, and the issued policy's exclusions, Schedule B exceptions, conditions and endorsements decide what is covered.
What Connecticut and New York require
Neither state makes an owner's policy a universal purchase requirement, but both regulate how title insurance is sold and disclosed. Connecticut's Title Insurance Act, Conn. Gen. Stat. §§ 38a-400 to 38a-425 (opens in a new tab), sets premium rate standards, requires published premium schedules and charges, prohibits rebates and inducements, and requires disclosure of specified financial interests.
New York requires title policy forms and rate manuals to be filed with the Superintendent under N.Y. Insurance Law § 6409 (opens in a new tab), which also bars rebates. Under 11 NYCRR Part 35 (opens in a new tab), covered transactions get a title report at least three days before closing, and the report must state that it is not a title insurance policy and may not list every lien, defect or encumbrance. Fees for title services must be posted or provided, with actual costs given at or before closing. When you apply only for a lender's policy, you must receive a separate written notice that it protects the lender and not you as owner, along with the availability of an owner's policy.
Questions to ask a title agent or insurer
- Is this an owner's policy, a lender's policy or both? Only an owner's policy protects you.
- What is the policy amount, and does it match the purchase price or the mortgage? The owner's amount generally follows the price and the lender's follows the loan.
- Which exceptions, exclusions and endorsements apply? They decide whether a specific lien, easement, boundary issue or ownership claim is covered.
- What are the total premium, title-search charge, closing charge, endorsement fees and other separate fees? The premium may not be the only title cost.
- If I refinance, does a reissue, refinance or concurrent-policy discount apply, and is a new lender's policy required? A refinance commonly ends the prior lender's policy.
Frequently asked questions
A few more questions come up around closing.
Is title insurance the same as homeowners insurance?
No. Title insurance covers ownership and lien problems that existed before the policy date. Homeowners insurance covers future damage to the home and belongings, plus specified liability, and it is paid periodically and renewed. Neither replaces the other.
Does a title search remove all title risk?
No. A search identifies recorded history and possible issues, while title insurance addresses certain unknown defects that come to light later. That is why a report can list exceptions without catching every possible defect.
Does title insurance cover a neighbor's fence built after I buy?
Generally no. Title policies cover problems that existed before the policy date, so an ownership issue created after purchase, such as a neighbor building a fence on your land, falls outside it, according to the NAIC.
Who pays for title insurance?
It depends on the state and the deal. In California, local custom commonly sets who pays, though buyer and seller can negotiate it, according to the California Department of Insurance. Ask the title agent for the written premium and itemized charges.