While working with some first time home buyers this week they asked if a title insurance policy was different than the home owners insurance policy their loan officer had told them they would need to get before they went to closing.
It was easy to understand their confusion as the terms do sound very familiar. The simple answer to the question is YES and you need both but for different reasons.
Home owners insurance is designed to protect you should your home is hit by lightening or a tree fall through the roof. You renew and pay for the policy every year. Depending on the type of coverage you decide to buy it will cover not only damages to the structure of your home but also can cover personal property within your home as well. There is usually a deductible that is not covered when you file a claim and the rest of the damage is covered by your policy.
Lenders title insurance is required by your mortgage company to insure their interest in the property. The amount of the policy they require is the amount of the mortgage they hold. Should any previous owner file a claim against the property or any other “cloud” arise on the title of the property their investment is protected.
Owner’s title insurance is optional and covers the actual value of the property at the time of closing. Should a previous owner, contractor or neighbor ever make a claim against the property you would have to hire your own lawyers and defend yourself against the claim if you did not have an owner’s title insurance policy.
The fee for title insurance is paid once at closing and covers you not only as long as you own the property but forever. Though title problems are not common the peace of mind of knowing you can turn over any claim directly to the insurance company is well worth the cost. Most title companies offer two choices in policies, standard and a comprehensive policy (the names may be different based on the company issuing the policy.) Both policies cover against title issues and mechanics liens. The comprehensive policy also provides coverage for zoning violations and offers increases in policy limits for a period of time as well.
As a homeowner protecting your interests and your home against all types of losses are important. These two policies are the key to resting easier at night as you settle in to your new home.