Pay One-time for Owner’s Coverage

Pay One-time for Owner’s Coverage

The Other Insurance Policy Every Homeowner Needs

In the wake of 2017’s destructive hurricanes, floods and fires, homeowners are more aware than ever of the importance of having adequate homeowner’s insurance and possibly flood insurance to protect their investment. But another insurance policy – title insurance – is just as essential and less costly.

Title insurance, according to the Consumer Financial Protection Bureau (CFPB), protects your lender (and you, if you purchase your own coverage) against a legal claim about your property. For example, a contractor for a previous owner could place a lien on the property or a long-lost relative of a previous owner could come forward with a claim of ownership.

Unlike other types of insurance that you usually pay through monthly, quarterly or annual premiums, title insurance is purchased with a one-time premium paid at the closing on your property. While the lump sum may seem expensive, Stewart Title points out that if you estimate how long you own the home, your annual or monthly expenditure would be much lower than homeowner’s insurance.

An example from the American Land Title Association estimates the cost for an owner’s policy for a home in Washington, D.C., listed at $474,000 and assuming a 20 percent down payment, is $1,100. Over the average duration of homeownership, that spreads out to about $85 annually or about $7 per month. Even if you only stay in your home five years, the cost is the equivalent of just $220 annually, which is minimal compared to the potential cost of a claim.

Lender’s title insurance and owner’s title insurance

Homebuyers must evaluate whether they need two separate title insurance policies. Your lender will nearly always require you to pay for a lender’s title insurance policy. Just like it sounds, this policy only protects your lender, covering them for losses not to exceed their loan to you. If you do not buy an owner’s policy and someone sues you over a claim on your property, you would still be responsible for paying legal fees and possibly paying the claim if a court decides it’s valid.

If you purchase the optional owner’s title insurance policy, you will have insurance coverage for the purchase price of the property. Owner’s title insurance pays for legal fees and claims against your ownership of your property. Virtually every financial expert recommends buying owner’s title insurance for personal protection.

Shopping for title insurance

Title services are one of the services associated with a home purchase that you can shop for and potentially save money. The CFPB points to research that says consumers can save as much as $500 on title services by shopping.

To start shopping, ask your lender and your real estate agent for recommendations for a title company. Then ask friends and family in your area for recommendations and search online. Some title companies post their fees directly on their website, which makes it easier to comparison shop. If you’re buying a home and the seller is paying for your title insurance according to the closing cost terms in your contract, you may not be allowed to shop as the seller or their real estate agent may select the title agent or closing attorney.

If you’re paying for title insurance, identify a few title service providers, ask them for a price quote and references. When you contact the references, ask them how responsive the company is and whether they had problems.

A significant issue in recent years is fraud and identity theft, sometimes associated with the transfer of funds during a real estate transaction. Ask for advice about how to protect yourself and what the title services provider is doing to prevent fraud. Never wire funds to anyone based upon an email request. Call your title agent directly to verify wiring instructions at closing are valid. Any wiring communication from your lender or title agent should come to you via secure email and require a user I.D. and password to open and view data.

Discounts: Ask if discounts are available for your insurance policy, which may include:

  • Discount for buying lender’s and owner’s title insurance from the same company.
  • A reissue or renewal rate could be an option if the seller’s title insurance policy is relatively recent and the sellers are willing to provide you with the name of their title insurance company.
  • Reissue credits for an existing owner’s policy when refinancing your mortgage loan.

Title insurance offers one of the best types of financial protection: something you pay for once and forget about, but is invaluable when needed.