Buckle up, we’re talking Title Insurance today.
While I admit not the sexiest subject, it is one that comes up every single day in our business. More specifically, the question of WHY do I need title insurance. Or to really be blunt, “tell me why I should buy this ‘optional’ Owner’s Title Insurance coverage for $800”.
Yes, why should you spend $800 (or more, or less…depending on your circumstances) on an optional policy? How do you know this isn’t a scam or way for the insurance company to get more money? Valid question. I feel the same any time I’m offered an extended warranty or optional maintenance plan when buying tools at the hardware store. What are the odds I will need this? Is it really worth it?
When buying a drill, the answer might be “No”. Mine usually is, since I lose it before it breaks anyway. But when you consider the fact your home is the biggest investment in your life, and you see the cost of the policy relative to the cost of that investment; it’s smart to understand why this coverage matters.
Owner Protection – In a nutshell, Owner’s Title Insurance protects your ownership of the property in the event someone sues to claim they had interest in the property prior you taking ownership. While it functions the same as any other insurance policy, in that it protects your interest, the manner in which it is both paid for and coverage periods are inverse of a typical insurance policy (i.e. auto, hazard, etc.).
A Small Price Actually – Your typical insurance policy charges a monthly premium, covers a restricted coverage period (monthly/annually) in the future and covers certain event that may happen in that limited time period. If you miss a payment however, your coverage lapses, and you have no insurance until all payments are made. Also, these payments never stop for the life of the policy.
Owner’s Title Insurance acts the opposite. That $800 payment I referenced above (again, this amount depends entirely on your purchase circumstances) is a one time payment that is rolled into your financing at the time you purchase your home. The best part is this is the only payment you ever make, and it provides you and your heirs coverage for your entire ownership of the property.
Peace of Mind – But what does it protect? Well, it protects you from the past, rather than the future (I need Marty McFly and Doc Brown for this part). More specifically, it protects you from any one of a variety of circumstances that took place prior to your ownership and could jeopardize some of or all of your current ownership of the property. Anything from unpaid federal tax liens or unpaid contractors who worked on the property before you owned it (these are the most common claims) to boundary disputes, breaks in the chain of ownership decades ago, filing errors at the registry, zoning mistakes, etc, etc, etc. (for a complete list, visit here).
And while the coverage period (forever!) and items covered in the policy (too many to list here!) are great, the best part is the cost. For instance, in Massachusetts the Owner’s Title Premium for a $500,000 home (with 20% down payment) is $1,175.00, or .002% of the purchase price. Trust me, if the warranty on that $100 drill were only .002% of the price, or $0.20, and covered me up until the day I inevitably lose it, then I would opt in every time. In the end, it is all about the value, not the cost.
So before you decline title insurance, know the true cost of what you are giving up, and how opting in could be the best investment to protect your biggest investment.