Title Insurance – Is it Worth the Cost?
Before settlement, you should decide if you would like to purchase title insurance and if so, which type of insurance you would like to obtain. The cost of title insurance is not insignificant, so do your homework!
What is the Title?
First things first. What is the title? The title is the proof that you own your property. The title on your property also shows the ownership of the property over the years.
Title insurance is a type of insurance that protects you in the event there is a defect in title, which could mean even though you paid for the house, you are not the rightful owner.
In this case, you may lose some or all of the money you paid for the property to date, along with any equity you have acquired. An example of where there would be a defect in title would be if an heir shows up later down the line and was never paid for his portion of the proceeds in a sale, or a lien is placed on your property. Another example would be if a lawsuit were filed against a former owner for unpaid contractor work.
What Are the Options?
OPTION 1 – NO TITLE INSURANCE
OPTION 2 – STANDARD TITLE INSURANCE
OPTION 3 – ENHANCED TITLE INSURANCE
What’s the Difference?
The standard policy covers you for defects and liens in the history of your title through the date and time your deed is recorded in the public records. An expanded policy may provide coverage for many additional risks, including some which might occur after the deed is recorded, for example if someone fraudulently makes a claim on your land. It also protects you if your home increases in value, the coverage increases up to 150% whereas with a standard policy it only insures you for what you paid for the home. As a result of the expansion of coverage, this policy typically has a 20% higher premium. You can see a further breakdown below.
BOTH POLICIES INCLUDE:
- Mechanic’s Lien Coverage
- Third party claims an interest in the title
- Improperly executed documents
- Pre-Policy forgery, fraud or duress
- Non-recorded restrictive covenants
- Defective recording of documents
- Prior recorded liens not disclosed in the policy
- Unmarketability of the title
- Policy insures anyone who inherits the property from you
- Policy insures the Trustee of your estate-planning trust
- Policy insures the beneficiaries of your trust upon your death
- Automatic increase in coverage up to 150% (not based on inflation)
- Post policy forgery
- Post policy encroachment onto insured land
- Legal right to ACTUAL vehicular and pedestrian access
- Up to $25,000 coverage for certain losses due to building permit violations (subject to a deductible*)
- Up to $25,000 coverage for certain losses due to zoning law violations (subject to a deductible*)
- Up to $10,000 coverage for certain losses due to existing violation of subdivision law (subject to a deductible**)
- Post policy structural damage from third party easement for mineral extraction
- Violation of restrictive covenants identified in the policy:
- Resulting in loss from correction or removal
- Resulting in loss of title
- Resulting in loss of use where single family dwelling prohibited
- Forced removal of existing structures that:
- Encroach onto an easement identified in the policy
- Violate a building restriction line identified in the policy
- Encroach onto neighbor’s land (subject to a deductible** and maximum*** if boundary wall or fence
- Land cannot be used for single family dwelling under zoning ordinance
What’s the Cost?
Title insurance is typically priced in tiers. A standard package will range from $3.40-$3.90 per $1,000 coverage depending on the home’s value (see chart below for Monument Title pricing). The enhanced of course runs, a bit more, $4.25 to $4.90 per $1,000.
$0-$250,000 – $4.90/1,000
$250,0001 – $500,000 – $4.65/1,000
$500,001 -$1,000,000 – $4.25/1,000
$0-$250,000 – $3.90/1,000
$250,0001 – $500,000 – $3.70/1,000
$500,001 -$1,000,000 – $3.40/1,000
So for example, in our area, standard title insurance for a home selling for $750,000, would cost $2,550.
What Do We Recommend?
Your settlement company will likely include information on selecting a title policy before settlement. Typically, they assume you will purchase the enhanced coverage. This is for two reasons: one, most people want the enhanced and two, it’s how they make their money! Despite the second reason, it is not a time to be cynical. Title insurance is incredibly important and is an important protection on your biggest investment, your home. Our recommendation is to get the enhanced coverage (full disclosure-we do have an interest in a local title company, but that is not why we recommend it. We all have bought enhanced for all of our purchases.)
Why Is That Our Recommendation?
Purchasing title insurance a one-time cost that protects you and your biggest investment for the life of your purchase.
Even the best title search and examination cannot protect your equity and home from matters not appearing in the public record.
So yes, buying the enhanced policy is a little bit more expensive, but in our opinion, worth the extra protection! We’ve all heard horror stories of when this minimal payment saves you hundreds of thousands of dollars down the line. If the cost seems daunting, think about how much you would spend in attorneys’ fees in the event you chose not to purchase title insurance and later had a title issue!
The Bottom Line
Open up your wallet and get the enhanced policy. It’s a one-time fee and gives you peace of mind that you won’t lose out on your biggest monetary investment in the event of a title issue in the past – or in the future.
Still have questions? Contact us today. We are here to help!
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