What Title Insurance Actually Covers — and What It Does Not

Most insurance you buy protects you against a future event. Your homeowners policy covers the fire that has not started; your auto policy covers the accident that has not happened. Title insurance works in the opposite direction. It protects you against something that already happened in the property’s past — a defect, a claim, an error in the record — that nobody found before you closed.

What a title policy covers

An owner’s policy generally protects you against loss arising from:

• Defects in the chain of title. A deed that was never properly delivered, a signature that was forged, a conveyance by someone who had no authority to convey.
• Undisclosed liens and encumbrances. A judgment against a prior owner, an unpaid tax or water charge, a mechanic’s lien that was filed and never satisfied.
• Errors in the public record. A misindexed instrument, an incorrect legal description, a satisfaction that was recorded against the wrong parcel.
• Missing heirs and probate problems. An estate that distributed property without clearing every interest, or an heir who was never located.
• Lack of legal access. A parcel that has no recorded right of access to a public road.
• The cost of defending your title. This is often the most valuable part of the policy. If someone brings a claim, the underwriter defends it.

What it does not cover

A policy is not a warranty that the property is problem-free. Standard exclusions and exceptions typically include:

• Matters you knew about and agreed to accept at closing.
• Zoning and land use restrictions, and most governmental police power.
• Problems that arise after the policy date — a lien you incur next year is yours.
• Survey matters, unless a survey was made and the exception was removed or an endorsement was issued.
• Environmental conditions and physical defects in the structure. That is what an inspection is for.

Owner’s policy vs. lender’s policy

If you take a mortgage, your lender will require a loan policy. That policy protects the lender’s interest — not yours — and its coverage declines as you pay the loan down. An owner’s policy is separate, is issued for the full purchase price, lasts as long as you or your heirs hold an interest in the property, and is purchased once at closing. In New York, the incremental cost of adding owner’s coverage when a loan policy is already being issued is comparatively small.

What to ask before you close

Read the title commitment. Ask your attorney which exceptions are being removed before closing and which will survive into the policy. An exception that survives is a risk you are agreeing to carry.