Myths and Facts About Title Insurance
Myth: Title Insurance is unnecessary because it has a very low claims ratio
Fact: The title industry is actually structured for low claims loss ratios.
Title insurance is a risk-elimination industry. In a perfect world, the title examiner would report, and the closer would clear up or eliminate all potential title issues (judgements, liens, etc.), prior to closing so that the purchaser obtains a good title. However, even the most competent title examiner cannot discover more than 20 types of hidden title defects that can adversly affect property title, including missing heirs, forgeries, improper parties to a deed, etc. Whenever such a challenge arises, title insurance protects the homeowner's right to that property.
Myth: Title Insurance is expensive coverage
Fact: Title insurance offers homeowners low-cost protection.
Assume that the one-time title premium on a particular transaction is $1,000. While that is not an insignificant figure on the HUD-1 settlement statement, it's more accurate to consider the cost of the premium over the time the property is owned. In the above example, if a purchaser lives in the property for 10 years, the one-time only premium's true cost is only $100 a year. That inexpensive coverage offers protection of the homeowner's most valuable asset for as long as the property is owned and protection forever on any warranties given by the insured to a future purchaser.
Myth: Few properties have title problems
Fact: A large percentage of real estate titles have defects.
Whether these defects are unreleased prior mortgages or judgements, questionable property descriptions, or something else that can adversely affect title, many of these properties would sell only at a significant discount -- and some would not sell at all -- without the comfort of a title policy. In many instances, title insurance is the grease that keeps real estate's wheels rolling.
Myth: Title Problems are solved by writing a check
Fact: Title claims are contentious, emotional, and very expensive.
Threats to property titles through fraud and other intentional means are on the upswing, and few homeowners can afford to pay litigation costs. Knowing that litigation fees and title coverage will be borne by the homeowner's title insurance company offers peace of mind worth every penny of the one-time-only premium.