Title insurance is one of the central closing concerns in the closing phase of a real estate transaction. The need for it is often assumed and built into the real estate purchase agreement itself. Despite its presence in the vast majority of transactions, the actual usage of title insurance by policyholders is very low.
According to the American Land Title Association, in 2019, the title insurance industry brought in nearly $16 billion, while paying $544 million in claims on policies. That’s a loss ratio of just 3.4%. For context, the loss ratio for the property and casualty insurance industry in 2019 was closer to 60%.
That fact alone is enough to cause one to wonder why title insurance is so important. What is it about this seldom used form of protection that merits it being a key component of real estate transactions?
While it is certainly reasonable to ponder that question, there is a reason for title insurance, and that reason matters. While rare, the chance that something may come up that affects your title is not zero, and, when there are problems, those problems can have a very meaningful effect on whether you own the title you think that you do. Losing your land to an adverse claim based on a newly discovered will, or unpaid tax lien, could be a massive hit to even the most solid purchasers, depending on the property in question.
The fact that title claims are relatively rare is actually a good thing. The goal of any insurance should be that it only applies in exceptional circumstances.
So, title insurance matters because peace of mind matters. Protecting very valuable assets from any kind of claim which could take them away is a good idea.
It’s also very important to understand what is happening prior to closing your transaction. You should understand your title commitment and policy. You should read your exceptions and exclusions carefully, and know what kinds of claims are covered by your policy. You should understand what risks the underwriter sees with regard to your title and why.
Title insurance matters for multiple reasons, and understanding what’s in your title policy matters as well. Our goal is to help you understand what title insurance is, how it works, where to look for important terms, and how to make claims if needed.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
