What is title insurance, and do you need it?

Title insurance covers losses from problems in the chain of ownership that existed before you bought, which distinguishes it from every other insurance you carry: it looks backward rather than forward. Covered defects include undisclosed liens from unpaid contractors or taxes, forged or improperly executed documents, errors in public records, boundary disputes revealed by survey, and heirs who surface with a claim to the property. A title search before closing finds most problems, and the insurance covers what the search missed.

There are two distinct policies and the difference costs people money. The lender's policy is required by essentially every mortgage lender, is paid by the buyer in most markets, and protects only the lender's interest up to the loan balance, declining as you pay down. The owner's policy is optional, protects your equity for as long as you own the property, and is paid once at closing. Buyers regularly assume the required policy protects them, which it does not. Because a single search supports both, the owner's policy is generally available at a substantially discounted simultaneous rate when purchased alongside the lender's, which is the moment it is cheapest.

The economics are unusual and worth understanding. Title insurance has historically had low claim payout ratios relative to premiums, which reflects that most of the cost is the search and curative work preventing claims rather than paying them, and it has drawn regulatory scrutiny. Rates are set or filed with regulators in many states and are not negotiable there, while in others they vary and shopping produces real savings. Ask specifically about the enhanced or extended owner's policy, which covers additional risks including some post-policy events, and confirm what the survey exception excludes, since declining a survey can leave boundary and encroachment issues uncovered.