It's a question many prospective home buyers ask themselves.
Although your lender will likely require you to purchase a lender's policy, the owner's title insurance policy is optional. But, if you think the lender's policy will protect you, think again. Lender's title insurance covers the lender for the outstanding amount of your home loan. As you pay down your loan, the lender's policy coverage goes down too. The lender's policy coverage may pay the the lender the balance of your loan, but you are left with a potentially worthless home and no money to purchase a new one.
Owner's policies cover the purchase price of the home, so the coverage will not decrease as you pay off your home loan. And since you, the owner, are the policy holder the payment goes directly to you, not your lender. Owner's policies will pay your legal fees to defend a covered title issue, and reimburse you for any loss you suffer up to the price you paid for your home.
So what does title insurance cover? There are standard and enhanced policies, but both cover defects that affect ownership of your home, including:
• Deeds executed under false or expired powers of attorney
• Mistaken interpretation of wills and trusts
• Incorrect representation of marital status
• Undisclosed heirs
• Mistakes in recording legal documents
• Incorrect legal descriptions
• Forged deeds, releases, etc.
• Federal, state inheritance and gift tax liens
• Errors in tax records
• Federal condemnation without notice filing
• Capacity of foreign fiduciaries
• Duress in execution of documents
• Want of jurisdiction over persons in judicial proceedings
• Deeds from minors or non-existent entities
• Discovery of later will after probate of first will
• Easements by prescription not discovered by a survey
• Deeds delivered after death of grantor or grantee, or without consent of grantor
• Deeds from incompetent persons
While title claims are somewhat rare, they certainly DO happen. Issues can arise from ANY of the previous owners of your property. Consider the gentleman who passed away 40 years ago and left his house to his son. The son sold the property to a couple, who sold it to you. When the gentleman's estranged daughter shows up with a will that says she was supposed to own part of your home, you have a problem! Without title insurance you may have to pay your own legal costs to fight the claim. If you lose in court, you may no longer own the property.
Like every insurance product, title insurance protects you from rare, unpleasant, but sometimes unavoidable circumstances. UNLIKE every insurance product, you pay for it one time and it protects you as long as you own the property. For protection that may cost less than your monthly health or auto insurance bill, it's worth the one-time premium.