Understanding Title Insurance and Why You Need It

You probably have a lot of things on your mind when you’re buying a home – and title insurance may not be one of them. It’s one of those line items that shows up on your closing paperwork, but many buyers don’t really know what it’s for. And that’s totally normal. Let’s walk through the top things you should know about title insurance and why it matters for your peace of mind.  

Title Insurance Explained  

Like other forms of insurance, title insurance protects you from financial loss, but here, the loss relates to ownership of your property. It works a little differently than auto or health insurance. Instead of covering future accidents, title insurance protects against problems that may have happened in the past but could surface later. 

Common examples include errors in public records, an old lien that never got cleared, or even a missing signature from decades ago. Title insurance helps ensure that when you buy your home, the ownership is legally transferred to you (and that you won’t be blindsided by hidden title issues down the road). 

Expert Tip

Another difference? You don’t pay monthly premiums. Title insurance is a one-time cost at closing that protects you for as long as you own your home (or for the life of the loan, depending on the policy).

Why Title Insurance Is Important 

Before closing, a title company or attorney will do a title search. They comb through public records to confirm that the seller actually owns the property free and clear, and that there aren’t debts, disputes, or claims attached to it. Most of the time, this search clears the way for a smooth transfer. 

But sometimes, issues slip through the cracks or pop up years later. Title insurance steps in to cover your legal costs and potential losses in these situations. 

So, Do You Need Title Insurance? 

That’s the big question. And there are two main types of policies you’ll hear about: 

Lender’s Policy 

If you’re taking out a mortgage, your lender will require title insurance. It protects the bank’s interest in the property. If someone challenges your ownership and you lose the home, the lender gets reimbursed for what you owe on the loan. 

Owner’s Policy 

This one is optional but highly recommended. It protects you and your heirs for as long as you own the home. If you’re ever forced into a legal battle over your title – or worse, lose your home – you won’t be left footing the bill on your own. 

What Happens If You Opt Out? 

Technically, you could pass on the owner’s policy. But here’s the risk: 

• A co-owner from years ago never signed off on the sale. 

• A newer will surfaces, proving the seller didn’t actually inherit the property. 

• A contractor or creditor files a lien that was never properly cleared. 

Without owner’s title insurance, any of those situations could put your down payment, your mortgage payments, and your home itself at risk. With it, you have a safety net. 

How Much Does Title Insurance Cost?   

Good news: Title insurance isn’t a recurring bill. It’s a one-time premium you pay at closing. However, the exact amount depends on your state and local market. 

Who pays – the buyer or the seller – also varies by region. In some areas, it’s customary for the seller to cover it; in others, it’s the buyer. If you’re paying, feel free to shop around. But if your lender already has a preferred company, it can be simpler (and sometimes cheaper) to bundle your owner’s policy with the lender’s. 

Putting It All Together 

Buying a home truly is one of the biggest financial steps you’ll ever take, and it comes with a lot of moving parts. Title insurance may not feel as exciting as choosing paint colors or planning your first housewarming, but it plays a big role in protecting everything you’re working toward. For a single, upfront cost at closing, you’re shielding yourself from the kind of legal or financial surprises that could derail your investment years down the road. 

Ready to take your next step? Keep exploring the Knowledge Center for more tips on the homebuying process, what to expect at closing, and how to set yourself up for long-term success in your new home.