Do I Really Need Title Insurance?

After going through the home buying process, the one thing you want more than anything is the comfort of knowing that you are the rightful owner of your new property. While the chances are unlikely that someone will try to claim ownership of your home, it happens. If you paid for title insurance at the closing of your home, you’ve got nothing to worry about! However, if you don’t have title insurance, you’ll probably have to face some unfortunate legal expenses (and not to mention frustration) in trying to prove your ownership.

Our Answer: Yes!

Let’s back up for a minute. How exactly could someone try to claim that they have ownership of the home that you clearly paid for? It might sound ridiculous. Here is a typical, albeit hypothetical, example of what can happen:

While you are going through the process of purchasing your home, a woman named Mary loses her great-grandpa. She and her family begin the tedious process of going through all of his belongings. You, meanwhile, have a successful inspection and go through with the closing. The home is yours! But wait – not long after you’ve moved in, you get a call. As Mary was sifting through her great-grandpa’s belongings that day, she suddenly found an unrecorded deed saying that her great-grandpa owned the home you just bought! She is claiming that the home belongs to her family and not to you. What do you do?

Home Title Insurance Types

This is where title insurance comes in. There are two kinds, and each is a one-time payment at closing:

  1. Owner’s title insurance. This is optional, but if you choose to purchase it, it will protect your home ownership if you get a call from someone like Mary. The cost is based on the purchase price of your new home, and also varies from state to state and transaction to transaction.
    Lender’s title insurance. This is mandatory, and it is always paid by you (the buyer).
  2. Lender’s title insurance protects the lenders’ interest in your new property in the event that your ownership is challenged by a Mary. The cost is based on the mortgage amount and also varies from state to state and transaction to transaction.

person signing a document with a pen

Before you actually purchase your home (and title insurance), you and/or your lender choose a title company to research the chain of title (ownership) of your soon-to-be-purchased home to be sure that there are no outstanding claims of ownership or debt on the property. If any problems come up, it is the seller’s responsibility to obtain a “clean” title before you buy the house.

Once you have closed on the home and obtain ownership, you can call your title company to protect you and defend your title if you should get a call from someone like Mary. It is important to remember that your title insurance policy will defend you even after you sell the home. Even then, someone could come forward with a claim against the title during your time of ownership. Or more sadly, if you should die, the insurance coverage continues for the benefit of your heirs. Because of this, be sure to store your written policy with your other important documents indefinitely to keep it safe!

Everyone has to decide for themselves, but for what usually costs several hundred dollars, owner’s title insurance can provide a lifetime free of worries about your claim on home ownership, and save you thousands of dollars in legal fees in the event that your ownership is challenged.