What is Title Insurance?

Most borrowers would perceive that having title insurance is an unnecessary add-on to the already complicated and costly process of buying a house. However, it is essential for borrowers to understand that having a title insurance for their home assists in speeding the process of closing their new home, while protecting them and their heirs against a variety of unforeseen and expensive risks. Having insurance protects the borrower and is cost-effecting as well, however, there are a lot of aspects to be knowledgeable about title insurance.

What is Title Insurance?

The basic concept is to protect a homebuyer and lender against losses from defects in their title – the legal ownership of their property. There can be many defects which the homeowner may not be aware of, some of which include issues with the property survey, the registration of your land title and problems being inherited from a previous owner which could not have any information about. Moreover, encountering a title defect can be unpredictable and expensive but having an insurance for such cases lets homeowners protect themselves.

Are title insurance and home insurance similar?

There are cases where homeowners might believe that having title insurance or home insurance is the same thing, and most would also believe that having home insurance means that they are fully protected. Nonetheless, home insurance and title insurance are two different legal items, and both cover completely separate risks, and their premiums work differently.

Home insurance deals with the physical structure of a home and the items that are inside the home. On the other hand, title insurance deals with the legal ownership of a property, even if it’s an empty lot. It is important to note that having home insurance ensures that the homeowner is protected from potential damages to their home or losses to replace stolen insured items. Consequently, title insurance covers (apart from future fraud) losses from issues that already exist but are not known to the homeowner.

Here are some examples:

• Are you out of money because your shed flooded, or your home was robbed? You may be covered by home insurance.
• Are you out money because the shed turned out to be on your neighbour’s land (a mistake by the surveyor) and you had to move it? That may be a title insurance claim.

What does title insurance cover?

Generally, it covers losses from problems that already exist but are not known to the homeowner.

• If a land survey is not conducted properly, then the homeowner would not know about it until they were forced to move the shed they built on their neighbour’s land.
• If the previous homeowner did renovations without a permit, the current homeowner would not know about it until the city asks them to bring their home to code.

By having title insurance, all the above-mentioned scenarios would be covered. Another benefit of having this type of insurance is that it protects the homeowner from title fraud i.e., a thief using their identity to borrow money against their home, or even sell it out from under them.