Title Insurance
Title insurance protects against undiscovered title defects. Learn about owner’s and lender’s policies and what title insurance covers.
Definition
Title insurance is an insurance policy that protects property owners and lenders against financial loss from title defects that were not discovered during the title search. According to the National Association of Insurance Commissioners, title insurance covers past title problems (defects) that aren’t known until after you buy a property. Common defects include forged or incorrectly filed deeds, unknown liens, encroachments, and fraud. There are two main types: an owner’s policy, which protects the buyer’s equity up to the purchase price for as long as they own the property, and a lender’s policy, which protects the lender’s interest for the life of the loan. Title insurance is purchased as a one‑time premium at closing and provides peace of mind that hidden issues will not result in costly legal battles.
Why It Matters
You pay the premium once and the coverage lasts as long as you own the place, which makes it odd that almost nobody reads the policy. It answers for the forged deed from 1978, the contractor lien recorded against the wrong parcel, the heir who was never notified of a probate. A lender's policy protects the bank's loan balance and nothing else, so declining the owner's policy means funding your own defense.
Examples
Three years after closing, someone claiming to be the prior owner's daughter files suit over an unprobated interest, and the insurer pays for the defense attorney.
A roofer's unpaid mechanics lien from before the sale surfaces during a refinance, and the owner's policy covers the $14,200 needed to clear it.
On a $700,000 Washington purchase, the owner's policy premium runs roughly $1,200 as a one time charge, with a simultaneous issue discount applied to the lender's policy.
Tips
Read Schedule B of the title commitment during your review period: everything listed there is carved out of coverage, and that is where easements, CC&Rs and mineral rights hide.
Ask what extended owner's coverage costs, since the standard form excludes unrecorded mechanics liens and boundary problems that the extended form picks up.
In Washington the seller customarily pays for the owner's policy, so if a contract shifts that cost onto you, treat it as a price term and account for it in your offer.
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