It is the one insurance policy you hope never to use — and the one that can save you from financial disaster if you do.
Every real estate transaction carries a hidden risk that the seller cannot see and the buyer cannot easily discover: a defect in the title that does not appear in any public record until after you own the property. A forged deed. A long-lost heir who surfaces and claims ownership. A mortgage that was satisfied but never recorded. A boundary dispute based on a survey error from 1952. These are not hypotheticals — they are the real-world claims that title insurance exists to cover.
What Title Insurance Protects Against
Unlike most insurance policies, which protect against future events, title insurance protects against defects that existed before you purchased the property — defects you could not have discovered through any reasonable search. Title insurance covers:
- Liens — unpaid property taxes, contractor liens from previous work, homeowner association liens
- Encumbrances — easements, deed restrictions, or leases that limit your use of the property
- Forged documents — deeds, powers of attorney, or mortgages that were signed by someone impersonating the true owner
- Missing heirs — an heir of a previous owner who was not properly notified of the sale
- Incorrect legal descriptions — errors in the property description that affect the boundaries or size of the parcel
- Clerical errors — mistakes in public records that create cloud on title
Owner's Title Policy vs. Lender's Title Policy
If you are getting a mortgage, your lender will require a lender's title policy, sometimes called a loan policy. This policy protects the lender — not you — and its coverage amount decreases as your mortgage balance declines over time. It is not designed to protect your equity.
As an investor, you need an owner's title policy — a separate policy that protects your actual ownership stake in the property. The owner's policy is a one-time premium paid at closing, and it remains in effect for as long as you own the property. The cost is typically 0.5% to 1% of the purchase price, depending on the value and the insurer. On a $200,000 property, that is $1,000 to $2,000 — a trivially small cost compared to the hundreds of thousands of dollars in potential losses from a title defect.
The ALTA Survey
For commercial properties or land transactions, title insurers often require an ALTA survey — a highly detailed boundary survey prepared by a licensed surveyor that meets the standards set by the American Land Title Association. An ALTA survey identifies:
- Accurate boundary lines and acreage
- Location of all structures and improvements
- Visible easements and rights-of-way
- Encroachments by neighbors or by the property onto adjacent land
- Flood zone designation and wetland boundaries
Title insurers use the ALTA survey to identify survey-related risks and exclude them from coverage or negotiate appropriate endorsements.
How to Shop for Title Insurance
In most states, you have the right to choose your own title insurer — but the settlement agent (title company or attorney) often controls this decision. You can request a quote from a competing insurer and compare rates. In some states, title insurance rates are regulated and all insurers charge the same filed rate; in others, rates are competitive and shopping around can save you 10% to 20%.
Ask the title company what endorsements are included in the base policy and what additional endorsements are available. Common endorsements include:
- ALTA 9-06 — restricts the policy's coverage on a specific exclusion (survey-related)
- ALTA 25-06 — same as 9-06 but with more flexible survey standards
- ALTA 3.1/3.2 — addresses zoning compliance
- ALTA 28 — easements protection
The Closing Process
Title insurance is ordered by the settlement agent (title company or real estate attorney) at the beginning of the transaction. The title search happens before closing — the title company examines the public record and issues a preliminary title commitment listing all known issues. Some issues can be resolved before closing (a lien can be paid off, an encumbrance can be waived). Others are excluded from coverage and must be accepted by the buyer or negotiated away.
Claim Examples
Real title claims are not rare. A 2020 report from Old Republic Title noted that roughly 1 in 4 title searches surfaces some issue that requires resolution before closing. Major claims — the ones that would be catastrophic without insurance — occur less frequently but are devastating when they do. The largest title insurance claim in history, according to industry reports, exceeded $100 million, involving a fraudulent scheme that created phantom mortgages across dozens of properties.
More common: a boundary dispute with a neighbor who has been using a strip of your land for 30 years and now claims prescriptive easement rights. Without title insurance, you pay legal fees to defend your ownership. With title insurance, the insurer pays those fees — and compensates you for any reduction in value if the claim succeeds.