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Which of the Two Types of Title Insurance Do You Need?

Monday, August 15, 2022

You'll never forget the day you find your dream home. It's something you've thought about for years and possibly decades. 

Purchasing a home requires all kinds of paperwork, from mortgage paperwork to insurance. Unless you're buying a home with cash, you must purchase title insurance to protect you and your lender. 

As you begin the process of procuring title insurance, you'll quickly discover there are two types of title insurance at your behest. You can purchase standard title insurance or enhanced title insurance. So what's the difference? 

By the time you've finished reading this article, you will understand the similarities and differences between standard vs. enhanced title insurance. 

What Is Title Insurance?

To understand the types of title insurance available, you first need to understand the concept of title insurance. Title insurance qualifies as indemnity insurance. This means it will compensate a person for losses or unexpected damages up to a stated limit. 

In the case of title insurance, a borrower purchases the policy to protect the lender or the seller purchases an owner's title insurance to cover the future buyer's equity in their property. 

Understanding Title Insurance

To have any legal real estate transaction, you must have a clear title. A title company will search each title to check for liens or claims against them. The title company will not issue a clean title until they've conducted these searches. 

In the title search, the title company will look at public records. These records indicate a property's legal ownership. They also state whether anyone else has a claim on the property. 

For example, a title company will deem a title "dirty" if they discover unresolved building code violations or erroneous surveys. 

A title insurance company will protect homebuyers and lenders against damage and loss because of these dirty titles. Often people will file claims against a title because of liens, back taxes, or conflicting wills. 

In short, traditional insurance protects you from future events. Title insurance protects you from past occurrences. Here are the common hazards a basic title insurance policy covers: 

  • Incorrect signatures on documents
  • Forgery
  • Fraud
  • Flawed records
  • Ownership by another individual
  • Restrictive covenants 
  • Unrecorded easements
  • Judgments against the property
  • Outstanding lawsuits and liens

When you purchase title insurance, you're protecting yourself from losing money on a property because of some problems with the title itself. 

Two Types of Title Insurance

There are two different types of title insurance. You can purchase a standard policy or an enhanced policy. Understanding the similarities and differences between these two policies helps a buyer know which one is the best one for them. 

Similarities

Both standard and enhanced policies will include mechanic's lien coverage and third-party claims on interest in the title. You're also protected by both policies from improperly executed documents, fraud, duress, or forgery before you purchase your policy. 

Standard and enhanced policies cover you if you discover a non-recorded restrictive covenant. The same applies if you discover a defective recording of documents and prior recorded leans that the owner did not disclose. You're even covered if the title is determined to be unmarketable. 

Differences

An enhanced policy will add more coverage than the standard policy. For example, there's an automatic increase in the original policy, which can cover the increase in property value over time. The enhanced property will also insure any parties that inherit the property from the homeowner. 

If you die, the policy will also insure a trustee that you transfer the policy to even after the written policy date. It covers you for post-policy forgery and encroachment onto insured land. 

Enhanced policies will also cover losses, whether because of building permit violations or an existing violation of subdivision law. It also covers post-policy structural damage when a third party extracts minerals during an easement. 

Cost of Title Insurance

You need title insurance because you don't know what will happen when purchasing a home. A title insurance policy will protect you. 

Also, title insurance requires a one-time fee instead of an ongoing expense like other insurance policies. The cost depends on the home purchase price if you have an owner's policy. A lender's policy depends on the amount of the loan. 

Both policies added together will cost between 0.5% and 1.0% of the home's price. So if you have a $500,000 home, your insurance will cost between $2,500 and $5,000. 

The cost will also vary by state. In some states, the price for the insurance is the same regardless of which company you purchase it from. In other states, you can shop around for the best deal. 

Conduct your research after you receive recommendations from real estate agents and the seller. If your lender has a recommendation, you can trust them. The lender has the same financial interests in the property that you do, so they will recommend a reliable lender. 

Choose the Best Insurance For You

Enhanced insurance coverage is one of two types of title insurance that will cost a little bit more. This makes sense since it also covers more than standard title insurance does. 

Pick the insurance that makes sense for you. If you suspect you have a tricky policy, you should look for enhanced coverage. If you want to save money and suspect you have a clean title and no complications, go with the standard policy. 

Regardless of the insurance you purchase, you won't regret covering yourself properly. 

Are you looking for title insurance or any other type of insurance? If so, contact us. We have various policies that will work for whatever you may need. 

Give us a call today, and let us help you out. 

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