What Is Title Insurance?

Usually, when you think of insurance, you think of life insurance, homeowners insurance, auto insurance, etc. Title insurance differs in several respects from other types of insurance. Where most insurance is considered casualty insurance, 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 is non-casualty, and generally insures against losses caused by title problems that have their source in past events.

This often results in the curing of title defects or the elimination of adverse interests from the title before a transaction takes place. This is known as non-casualty. Title insurance companies attempt to achieve this by searching public records to develop and document the chain of title and to detect known claims against or defects in the title to the subject property. If liens or encumbrances are found, the insurer may require that steps be taken to eliminate them (for example, obtaining a release of an old mortgage or deed of trust that has been paid off, or requiring the payoff) before issuing the title policy. In the alternative, it may "except" those items not eliminated from coverage. Title insurance seeks to eliminate the source of the losses through the use of the recording system and other underwriting practices.

As a result, a relatively small fraction of title insurance premiums are used to pay insured losses. The great majority of the premiums are used to finance the title research on each piece of property and to maintain the title plants used to efficiently do that research. There is significant social utility in this approach as the result conforms with the expectations of most property purchasers and mortgage lenders. Generally, they want the real estate they purchased or loaned money on to have the title condition they expected when they entered the transaction, rather than money compensation and litigation over unexpected defects.

Standardized forms of title insurance exist for owners and lenders. For a more detailed explanation of each type of policy and what they cover, click the link above.