Why do I need Title Insurance?
Title insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year collecting, storing, maintaining and analyzing official records for information that affects the title to real property. Their technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title. Before closing your transaction, the title company will proceed to “clear” those encumbrances, which you do not wish to assume.
This theory is different from most other insurance where, for example, rates and anticipated losses are based on actuarial studies and premiums are pooled on the assumption that a certain number of claims will be made. The distinction is important: Title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. Medical and casualty insurance premiums, for example, are paid to insure against an unpredictable future event, knowing that risks exist and claims will, occur. Furthermore, title insurance involves a one-time premium, paid when you close the real estate transaction, while property, casualty, and medical insurance require renewal premiums.
What is a title search? A title search is the process of determining from the public record what the rights are to the land and who owns them. A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) for which he or she is paying.
The search process can be undertaken by NATIC agents in many jurisdictions. In some areas, however, searches are made only by practicing attorneys. Regardless of how the search is performed, in most real estate transactions today, a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title.
In those transactions where title insurance is involved, NATIC agents must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.
How Title Insurance Protects You
The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible – we live in an imperfect world, where human error and changing legal interpretations make 100 percent risk elimination impossible. When claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy. Title insurance reimburses you for the amount of your covered losses as defined in the policy and will provide defense against wrongful claims against your title.