When you purchase real estate, you will almost always be expected to secure title insurance in order to obtain a mortgage. Banks require title insurance to protect their investment, and you should do the same.

Title insurance protects you against undiscovered or undisclosed defects in the title not found before a purchase of real estate is finalized. Essentially, title insurers do a thorough background search on the property and its title to see if there are any liens, conflicting claims to ownership, or other problems that would impact a transfer of property to you. Once the insurance is issued, any problems with the title are revealed. Title insurance protects you against any conflicting title claims and any financial losses related to the title not found at that time.

You see, when you purchase property, you technically don’t buy the property outright. You buy a title to the land, which is a legal right to occupy and use the land– and any buildings on the land– as you wish. If the title is contested by another person, or a mistake is made when transferring the title to you, you may end up with a conflicting claim to the real estate. This claim can cause you financial losses– or even loss of right of the property.

What Does Title Insurance Cover?

Title insurance remains one of the least understood types of insurance, yet one of the most vital. Real estate often is a person’s biggest investment, so losses related to a home or other property can devastate your finances. Title insurance protects this investment. So what exactly does title insurance insure against?

At its core, title insurance insures against any conflicting claims to the property. Title insurance protects you from losing real estate–or at the very least, your investment in that real estate– due to mistakes during closing or missed problems related to the chain of ownership of the property. Some common examples of title hazards covered by title insurance include mistakes in public records regarding ownership of the property, a forged signature on the deed, claims against the property by an unknown heir of a previous owner, pending legal action or liens not discovered at the time of the sale, and instruments executed under an invalid power of attorney.

When your title is insured, title insurers assume financial responsibility for any losses you may suffer due to any title hazards. Your title insurer will pay to defend against any attacks on your ownership of the title and perfect the title (aka fix any discovered errors). If the title cannot be perfected, your title insurer will pay any losses you suffer. If you don’t have title insurance, you could lose your entire investment in a property simply due to a small mistake. Don’t risk that. Make sure you have valid title insurance before ever closing on a property.