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The Difference Between Homeowners Insurance and an Owner's Title Insurance Policy

Monday, April 12, 2021

From phishing scams on home closings to outright forgeries, some unfortunate home buyers lose their biggest asset - their home. Others lose their homes due to more innocent issues such as an improperly recorded deed. 

If you're buying a home, you're familiar with a title search, but a title search doesn't always protect you. You're also familiar with homeowners insurance because all lenders demand it for a home loan. 

Did you also know you can get an owner's title insurance policy? Are you wondering what that is? 

Keep reading and we'll explain the difference between homeowners insurance and an owner's title insurance policy. 

Homeowners Insurance

Homeowners insurance protects your home from unexpected damages and loss. A fire or burglary are two such covered losses on a standard homeowners insurance policy. 

Mortgage lenders want proof of homeowners insurance before they complete a loan. Without insurance, the homeowner might walk away from a badly damaged property and stop paying the mortgage. This leaves the lender with a damaged asset they can't sell to recover the rest of their loan costs. 

Not all homeowners insurance policies are the same. When buying homeowners insurance, make sure you know what's covered under the policy. 

Most policies have a deductible. This is the amount you pay out of pocket upfront in the event of damage to your home. If the deductible is $1,000, then you pay $1,000 toward the damages before the insurance kicks in. 

The lower the deductible, the higher the cost of the homeowners insurance policy. The yearly cost is the premium. Most insurance companies write policies for one year and renew the policy as the old one expires. 

If you have damages that your insurance policy pays on during the year, the cost of the policy goes up. Don't assume your policy covers every type of damage. 

Take a careful assessment of everything your insurance policy covers. You can find the basics of the coverage on the declarations page. Read through the fine print of the policy too and understand what the policy doesn't cover. 

Most policies do NOT cover floods or earthquakes. Coverage for damages due to these disasters come at an additional cost. You'll see these add-ons on the declarations page under "Additional Coverage."

Check to make sure the name and address on the policy are correct. 

Lender's Title Insurance Policy

When you buy a house, most lenders require a lender's title insurance policy. The policy protects the lender in the event of a past claim on the home that clouds the current title. 

A clouded title means the title is in doubt. This happens for lots of reasons. A lien, old claim, or old foreclosure can all cloud the title. 

The mortgage lender doesn't want to lose the loan money if an unforeseen cloud on the title arises. The lender's policy only protects the lender. It does NOT protect the owner against unforeseen title problems.

Owner's Title Insurance Policy 

An owner's title insurance policy isn't required by most lenders. Why buy an owner's title insurance policy? It protects your biggest asset - your house. 

There are a couple of types of owner's title insurance policies:

  • Standard
  • Enhanced

It's up to you which owner's policy for title insurance you buy or whether you buy one at all. It's a small price to pay for peace of mind in knowing you don't have to worry if something comes up that clouds your home title. 

Standard Owner's Title Insurance Policy 

Every company is different but a standard owner's title insurance policy covers a few things, including:

  • Improperly signed documents
  • Fraud
  • Forgery
  • Duress in the chain of title
  • Improperly recorded documents
  • Restrictive covenants
  • Lien on title due to violation of a restriction in Schedule B
  • Lien on title due to deed of trust/mortgage
  • Unmarketable title

A standard policy covers many of the common problems that arise for homeowners when dealing with a clouded title. An enhanced policy covers much more and leaves you with complete peace of mind when it comes to your title. 

Enhanced Owner's Title Insurance Policy

If you're looking for a little more peace of mind, consider an enhanced policy. This covers many more potential problems that cloud a home title.

Some, but not all, of the coverage included in enhanced policies:

  • Forced removal of a structure due to it falling on another's property or easement
  • Unrecorded homeowner's association lien
  • Building permit violations
  • Forgeries post policy
  • Damage from mineral or water extraction post-policy
  • Lack of access either vehicular or pedestrian
  • Adverse possession post policy 
  • Prescriptive easement post policy
  • Setback regulations violations

An enhanced policy also has other benefits that help in the event you have title problems. The coverage includes issues such as:

  • Law violations in the subdivision
  • Payment of rent for substitute land or facilities
  • Enhanced marketability due to better coverage
  • Lifetime insurance coverage
  • Inflation coverage post policy

These are a few of the things covered under the enhanced policy. You will pay more for an enhanced policy but you'll have great coverage in the event a problem arises. 

It's easy thinking you'll never have an issue but anyone who works on your home can issue a mechanic's lien for unpaid bills. You can't sell your home when there's an outstanding lien against it. 

There could be an improperly recorded lien against your home that doesn't show up until after you've closed on the property. If you've got the right owner's title insurance policy, you're protected. Otherwise, you may have to pay the bills to clear the title. 

Owner's Title Insurance Policy for Peace of Mind

Are you buying a home? An owner's title insurance policy offers peace of mind for an affordable cost, especially when you compare it to how much money you're spending on the home. 

For most people, their home is their biggest asset. Now that you have some knowledge about an owner's title insurance policies, it's time to find the best policy for you. 

Do you have questions or concerns about title insurance? We can help. Contact us today

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