What is the purpose of title insurance? How long is title insurance good for?
Understanding the value of title insurance is an important part of buying a home. While there are real estate deals conducted every day where a deed is transferred between parties and that’s the end of it, a more formal transaction involves title insurance. It’s also a requirement when there’s a lienholder involved, such as a mortgage company. But many people who are making a real estate purchase for the first time don’t really understand why they need title insurance, or what it’s good for. Here’s what to know.
What is the Purpose of Title Insurance?
The main purpose of title insurance is protection. That can include protecting the mortgage company, as well as the person who’s purchasing the house. Essentially, the title insurance is a policy that shows the title is free and clear. There aren’t any liens, defects, or other claims on it, and it can be safely and legally transferred from the seller to the buyer. If there are any issues with the title, those will need to be corrected before the transaction can be completed and title insurance can be issued.
In order to issue title insurance, the title is examined and the chain of title (who has owned the property in the past) is traced back to make sure there isn’t anything that could cause a problem for the new owner. If something is overlooked, and there is a claim made on the property at a later date, the title insurance policy will protect the home’s owner and pay any claims, in the same way as an auto insurance policy would pay out in an accident. Having title insurance is a very important part of owning property.
How Long is Title Insurance Good For?
One of the best things about title insurance, is that it doesn’t expire. If you buy a home and get a title insurance policy, it will be good for the rest of your life, provided you don’t sell the property to someone else. When a property is sold, another title search will be done, so the buyer can get their own title insurance policy. Then, it will be good until they sell the property to someone else. Once a transaction closes, the seller’s title insurance policy is no longer valid, and the buyer’s policy takes effect.
Title insurance is also a one-time commitment when it comes to payments on it. It’s paid for at closing, and then there aren’t any other payments that need to be made. It’s not like auto or homeowners insurance, that has monthly or yearly payments that need to be made. It’s a policy you can just forget about, in the sense of needing to do anything with it once you have it. Just put it away with your important papers in case it’s ever needed, and know that the property you own is protected from claims against the title for as long as you own that particular piece of property. Title insurance offers long-term peace of mind.
