Title insurance is an insurance policy issued by the closing attorney. There are two types of title insurance: Owner’s Title and Lender’s Title. Owner’s Title Insurance covers the purchaser while Lender’s Title Insurance only cover’s the lender. If a buyer purchases “Lender’s Coverage” only, he/she no longer has title insurance once the loan is paid off. However, if they purchase “Owner’s Coverage”, they have title insurance regardless as to the loan balance.
Title Insurance is paid for one time at the closing, not annually, and is computed based on the purchase price of the insured property. If a person purchases title insurance at the time of the land purchase, it would be in their best interest to increase the coverage once a structure is built upon the land. If not, they would not have adequate title insurance to cover both the land value and value of the structure (home, commercial building, etc.). You can purchase additional coverage from the original title company and perhaps obtain a discount on the new purchase.
Although the purchaser of the property always has recourse against the seller if a title policy surfaces in the future, title insurance would help in those instances where the seller doesn’t have the funds to correct the problem or if you can’t locate the seller. If an abstract of the title (checking title) was performed prior to the sale, any title issues should be exposed. However, there have been instances, i.e. illegitimate heirs from years ago surfacing, items not properly indexed in title records, fraudulent documents in the records or human error, which could result in a “cloud” on the title.
Title insurance is something that you hope you never need to use, but are very happy that you have it should a situation arise which affects the title to your property.