When you sign up for health, home, auto, or life insurance policies, the insurance company painstakingly determines the appropriate rates to charge based on the risk of a future uncertain event causing a claim covered under the insurance policy. Some of the factors which may be reviewed in determining risk include your age, your location, personal habits (like smoking), your credit rating, other personal information, and how much coverage you want.
Title insurance, however, works differently in terms of how risk is assessed. Unlike other forms of insurance, a title insurance policy protects the insured from events that happened on the date the policy was issued and prior to that. For example, an insured’s title policy would protect the insured from a defect in the title of their home that was not discovered during the title search and closing process.
Additionally, the title insurance policy premium is paid only once for the life of the policy. This is in contrast to most insurance policies that have a premium due at a policy renewal, which is often annual. How much you pay for title coverage depends on where you are buying and selling property, whether you are the buyer or seller, the purchase price of the property, and other variables.
One important variable of the title insurance costs is the rate. Insurance premium rates are typically regulated at the state level. The three most common approaches states take to manage rates include:
In states with file-and-use rates, the insurer can set and use new rates immediately as long as they file them within a certain time frame. Colorado, Arizona, and California are examples of states that regulate their rates with file-and-use.
In proposed-and-approved states, like North Carolina, rates must be filed with the state and are subject to prior approval or review.
In a handful of states, like Oklahoma, Mississippi, and Hawaii, rates are not required to be filed.
In states without promulgated rates, you can shop for various title insurers to try to find a lower premium. While your real estate agent or attorney may have specific title partner suggestions, consumers may ultimately choose their preferred agency.
Whether the buyer or seller pays for a title insurance policy usually depends on the region’s customary practice and the negotiated terms of the real estate contract. Market conditions can also influence who pays for what. For instance, in a market with low inventory and high home buyer demand, buyers may offer to pay all closing costs, including the lender’s title insurance policy as well as the owner’s policy.
Read more on the Peak Title Professionals, Owner’s vs. Lender’s Policies
The standard calculation takes the title company’s rate per thousand and multiplies it by the purchase price of the property.
Purchase price x Rate per Thousand = Title Insurance Premium
So, if the rate is $5.00 per $1,000, and you are insuring a $200,000 house, the title insurance cost will be $1,000.
But that’s for a standard owner’s title policy. A lender’s title insurance policy premium is similarly calculated, but it is based on the loan amount rather than the purchase price.
Another factor that can affect your title insurance cost is whether you qualify for a simultaneous rate.
A simultaneous rate is a reduced rate issued when the consumer purchases both a lender and an owner’s title insurance policy from the same company in the same transaction. The rate applied to one or both of the policies is lower with a simultaneous rate, saving you money on premium. Even in a promulgated state like Florida, this rate is available for qualified transactions.
In residential real estate transactions involving a lender, the federal TRID rule requires closing costs to be disclosed in two documents in a particular way. All of the closing costs associated with your real estate transaction will be found in the Loan Estimate and Closing Disclosure.
If you’re the one purchasing the lender policy, you’ll see this cost under the “Loan Costs” section on Page 2. If you’re opting to purchase an owner’s title insurance policy, you’ll see the associated cost under the “Other Costs Table” listed as “Title – Owner’s Title Policy (optional)” or something similar with the introductory description of “Title -” and concluding with the description “(optional)” in parentheses.
If your lender requires you to purchase an owner’s policy, which is rare, you’ll see it under the “Loan Costs” section with the lender’s policy line item with the “(optional)” description removed.
In a cash transaction, the title company will be able to provide you with a rundown of the costs associated with the title insurance policy to be issued. This document is usually called a Settlement Statement.
Finding the simultaneous rate on your Closing Disclosure can be confusing because it may differ from the amounts you see on state disclosure forms. Each state may list how the simultaneous rate is applied differently. In certain instances, the simultaneous rate is applied to the lender’s policy along with the full amount of the owner’s policy. In others, the state document may disclose both the lender and owner policy together as one lower cost.
TRID-regulated disclosures like the Closing Disclosure and the Loan Estimate will always show the full lender’s policy premium and will always disclose each policy as a separate line item. As a result, what you see on these documents may vary widely from what you see on a state disclosure.
Since the lender policy is disclosed in the full amount, the amount of the owner’s policy is calculated based on this formula:
((full owner’s policy premium) + (the simultaneous premium for the lender’s policy (i.e. the discounted rate)) – (full lender’s premium)
Closing costs can add up, but understanding how your title insurance premiums are calculated can help you find potential savings. If you plan to purchase both the lender and title policy or live in a state without promulgated rates, you have the opportunity to shop around and reduce your closing costs.
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.
