Title insurance is a unique form of insurance that protects property owners and lenders against financial loss resulting from defects in a property's title that existed before the purchase date. Unlike most insurance, which protects against future events, title insurance protects against claims arising from past events involving the property's chain of ownership.
It is paid for with a single, one-time premium at the time of closing and remains in effect for as long as the insured party has an interest in the property.
Title insurance companies primarily focus on risk prevention through a comprehensive title search rather than assuming risk for future losses.
Title Search: Before a policy is issued, a title agent or attorney searches public records (deeds, mortgages, wills, tax records, court decrees) to look for any existing issues, known as "clouds" on the title.
Clearing the Title: The title company works to resolve any defects found (like paying off an old lien) before the transaction closes.
Insurance Coverage: The policy is then issued, which protects the insured party against certain "hidden" defects that may not have been discovered during the initial search.