Most of us are familiar with the standard homeowners insurance policy. It protects you from damages that might occur on your property such as hail, water, fire, etc. However, what most people don’t know is that your standard home insurance policy doesn’t cover you for things related to your title.
Title insurance protects you against future discoveries about a property, some title-related and some non-title-related.
It is a form of indemnity insurance for a mortgaged property that covers the loss of an interest in a property due to discovered legal defects.
It’s a great insurance product that most people don’t actually have. And perhaps the best part, it only costs a couple hundred dollars when you purchase your home.
What Is Title Insurance?
You’ve moved into your new home and you want to put up a fence. You build the fence based on the documentation provided by the lawyers. Two days later, your neighbour complains that your fence is on their property and makes a complaint with the city.
But you’re protected because you purchased home title insurance before you bought your home.
Title insurance will financially protect you when disputes over who has rights to your property arise. These disputes can include tax liens, easements, property lines, zoning issues, and even identity theft. Title insurance confirms that you have legal ownership of the property and is valid as long as you own the property.
If there were defects or irregularities in the real property report for your home, which resulted in your fence being built on your neighbour’s property, your home title insurance will cover the cost to move the fence. If your neighbour put his fence on your property, the insurance will cover the cost of your defence in court.
Owner’s Policy vs. Lender’s Policy
There are two components to home title insurance—the owner’s policy and the lender’s policy. You will typically need to purchase both.
The owner’s policy covers you, the owner, while the lender’s title insurance protects your lender from losses if errors were made on the paperwork for your mortgage.
The owner’s policy covers the entire purchase price of your home while the lender’s policy is often just for the amount of the mortgage.
Protecting Your Identity
Unless it has happened to you, it’s hard to imagine your identity being stolen. It can be more than just purchases made on your credit card. Some people have had homes purchased or sold in their names without their knowledge.
Owner’s title insurance not only protects you from any other title issues that could affect your ability to lease, mortgage or sell your property in the future, it also includes the “duty to defend,” which will cover your legal expenses from the fraudulent mortgages.
How Is Title Insurance Different From Property Insurance?
Title insurance protects your ownership of the property. Property insurance covers any loss or damage to your home, items inside your home, and medical expenses from accidents that occur on your property. It’s important to have both.
You pay a one-time premium for home title insurance, while property insurance is typically paid by a monthly premium.
What's Not Covered By Title Insurance?
As with all insurance policies, there may be some exclusions from your home title insurance, including:
Any known title defects that you were aware of before you purchased the home;
Environmental issues, such as soil contamination;
Mineral rights or mineral extraction rights on the property;
Matters that aren’t listed on the public record, such as unrecorded liens and encroachments; and,
Zoning bylaw infractions that have come up as the result of renovations or additions you have made.
Getting Title Insurance On Your Current Home
You can still purchase title insurance if you already own your home. But the policy will not cover any issues that come up after the date the sale closed. It can also be tricky to figure out if something is a pre- or post-ownership issue.
It’s a good idea to keep good records of anything you do to your home or property, in case an issue arises later.
If you don’t have title insurance and would like to put a policy in place for your property, let me know.