Questions and Answers about Title Insurance

1.  What is Title Insurance?

Title insurance is insurance against loss from defects in title to real property and from the invalidity or enforceability of mortgage liens.  Before you purchased your home it may have gone through several ownership changes, and the land on which it stands may have went through many more.  There may be a weak link at any point in the chain that could emerge to cause problems.  For example, someone along the way may have forged a signature in transferring title or there may be unpaid real estate taxes or other liens.  Title insurance covers the insured party for any claims and legal fees that arise from such problems. 

2.  Do I have to Purchase Title Insurance?

If you need a mortgage to acquire a property then the answer is yes.  All mortgage lenders require protection for an amount equal to the loan amount.  It lasts until the loan is repaid.  When acquiring a loan, title insurance is required to protect the lender, but you, the consumer, pay the premium.  The premium is a single payment made upfront at the time of the closing. 

3.  Does Title Insurance Do Anything for Me? 

The required insurance protects the lender up to the amount of the mortgage, but it doesn't protect your equity in the property.  For that, you need an owner's policy for the full value of the home.  In most cases in Kentucky, the buyer will typically purchase the owner's policy simultaneously to purchasing the lender's pPlicy at closing, but it can be purchased at any time.  In Southern Indiana, the seller will typically contribute toward the cost of the premium the buyer must pay for the purchase of the owner's policy.  In any event it is a good idea to purchase both policies simultaneously, because there is a discounted premium when doing so.

4.  Doesn't the Lender's Policy Indirectly protect me?

No, title policies are indemnity policies.  That means they protect against loss.  The lender's policy would, therefore, only cover a loss on the lender's part. 

5.  For How long is the Property Owners Purchasing Title Insurance Covered?

Indefinitely.  The owner's protection lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property.  When they sell, the lender will require the purchaser to obtain a new policy.  That policy protects the lender against any liens or other claims against the property that may have arisen since the date of the previous policy. 

6.  Will Title Insurance Prtoect Me Against False Claims That May Arise After I Purchase the Property?

The standard policy does not.  To compensate for this deficiency a new policy with with expanded has been developed.  This is commonly known as the ALTA Homeowners policy or Enhanced Owner's policy.

7.  Does Title Insurance Rise with Increases in the Value of My Property?

No, but coverage under the ALTA policy referred to in Question 6 increases by 10% a year for the first 5 years after issuance to 150% of the initial amount.  You can buy additional coverage as rider to the policy.

8.  Why Do I Need to Purchase a New Policy When I Refinance?

You don't need a new owner's policy, although it is recommended for added protection for the homeowner.  However, you will be required to purchase a new lender's policy.  Even if you refinance with the same lender, the existing lender's policy terminates when you pay off the mortgage.  Also, the lender may be concerned with any title issues that may have arisen since you purchased the property.  In some cases, if you have previoulsy refinanced or puchased your home within 5 years you may be eligible for a discounted policy.  This is known as a re-issue.  Ask your title company or lender if you qualify.