Every deed should preserve eligibility for title insurance, even if no one plans to purchase title insurance at the time of the transfer.
Title insurance plays a critical role in real estate transactions. Lenders require it as a condition of financing, and buyers often purchase a owner’s policy for added protection. Because title insurance is almost always needed to sell property, the insurability of title affects property value. If title is not insurable, property value decreases (even if there are no immediate plans to buy title insurance).
Because of its effect on property value, title insurance underwriting guidelines can matter as much as black-letter law. Deed preparers must be mindful of title insurance practices in their state to ensure that deeds that they prepare do not create title defects that make property uninsurable.
What is title insurance?
Title insurance is a form of insurance that protects an owner or lender against covered losses from title defects discovered after closing.
Like other types of insurance, title insurance is about risk allocation. When a title insurance company underwrites a title policy, the title insurer promises to fix any covered title defects. If a title defect is discovered, the title insurance company either fixes the problem or pays the owner.
When is title insurance used?
Buyers and lenders use title insurance in nearly every financed real estate sale. Because lenders require it, title insurance is effectively mandatory for financed sales. It is so important that some states, like Texas, require a buyer’s real estate agent to advise the buyer to either have the abstract examined by an attorney or obtain a title insurance policy.1
Title insurance is less common when property is gifted to the grantee (for estate planning purposes, for example).
Attorney Practice Note: Real Estate Sales vs Gift Deeds
We see title insurance in almost every real estate sale, but rarely for gifts of property (for estate or family planning purposes). In that context:
- The parties are closely related and trust each other
- No lender is involved to require title insurance
- Because the grantee is paying nothing) the grantee has no financial investment to protect with a title insurance policy
In this context, the grantee usually accepts a quitclaim deed (gift deed) from the grantor and does not purchase title insurance.
What does title insurance cover?
Title insurance protects buyes and lenders from financial loss caused by title defects. The standard title insurance policy (often called the ALTA Owner’s Policy or Lender’s Policy) protects against common, pre-existing title problems that could impair the property owner’s title.
Title insurance focuses on risks that appear in public records and arise from past events. It covers past risks, not future ones. For example, standard title policies exclude future zoning disputes, new boundary conflicts, or other post-closing issues.
How is a title insurance issued?
Title insurers issue title policies through a four-step process:
- The title insurer requires a title search and examination
- The title examiner reviews the chain of title and notes any issues
- The insurer issues a title commitment explaining the policy’s terms and coverage
- The title insurer issues the policy at closing as promised in the commitment
Before writing a title policy, title insurer follows its own version of this process strictly, minimizing the risk that claims will later be asserted against the policy.
What is a title commitment?
A title commitment is the insurer’s promise to issue coverage at closing under specified terms. The title commitment outlines how the policy will be issued.
Title commitments involve several schedules. Schedule A of the title commitment describes the structure of the deal. It includes:
- The parties to the deed (the grantor and grantee)
- What type of estate is being transferred
- The legal description of the property
- The amount of the policy (based on the purchase price or loan amount)
Schedule B-I lists the requirements for issuing the title policy at closing.
- The seller must pay off and secure releases of existing loans or mortgages
- The seller must resolve any open probate issues
- All signers acting on behalf of someone else (trustees or executors, for example) must provide evidence of signature authority
- The title company or closing attorney must record any corrective deeds, releases, or other documents needed to cure title defects
These items form a checklist the insured must complete before closing.
Schedule B-II lists the exclusions from coverage (exceptions). Unlike the Schedule B-I requirements, Schedule B-II exclusions remain after closing. Common exclusions include:
- Easements (like utility access or driveways)
- Covenants, Conditions, and Restrictions (CCRs) from a subdivision or homeowner’s association
- Any taxes or assessments that are due at closing (those due prior to closing are typically resolved at or before closing)
- Any known survey issues like encroachments or boundary issues
The grantee is unprotected against Schedule B-II exclusions unless the grantee purchases a separate endorsement.
What are the types of title insurance policies?
There are two types of title insurance policies:
- An owner’s policy protects the property owner
- A lender’s policy protects the lender
The insurer usually limits the owner’s policy to the purchase price unless the owner buys enhanced coverage. The lender’s policy protects up to the amount of the loan.
How much does title insurance cost?
Title insurance is based on the purchase price (for an owner’s policy) or the loan amount (for a lender’s policy). Costs vary by state, but these are typical:
- For an owner’s policy, expect between 0.4 percent and 0.9 percent of the purchase price
- For a lender’s policy, expect between 0.3 percent and 0.6 percent of the loan amount
If a lender’s policy is required for financing, most buyers also add an owner’s policy. Insurers offer combo rates that discount the owner’s policy when bought with a lender’s policy. This combo rate discounts the second policy and can save 30 or 40 percent compared to purchasing each policy separately.
Links to fee calculators for the major title underwriters are provided below.
Buyers pay title insurance as a one-time premium at closing. Coverage requires no recurring payment.
How can I get a title insurance policy?
You can purchase a title insurance policy from a title underwriter. According to the American Land Title Association (ALTA), the following companies make up over 75 percent of the title insurance market:
- First American Title Insurance Co. (title insurance calculator)
- Fidelity National Title Insurance Co. (title insurance calculator)
- Old Republic National Title Insurance Co. (title insurance calculator)
- Chicago Title Insurance Co. (title insurance calculator)
- Stewart Title Guaranty Co. (title insurance calculator)
Even though these legacy insurers still dominate the market, newer tech-focused underwriters are gaining market share.
Is title insurance required when deeding property to a new owner?
A title insurance policy isn’t required for a valid deed. A deed that otherwise meets state legal and recording requirements will transfer title to the property even if no one purchases title insurance.
Although the law doesn’t require title insurance for a valid deed, most lenders refuse to loan money against property without a lender’s policy. This lender requirement makes title insurance a practical requirement in financed real estate sales.
In an all-cash deal (no loan involved), no policy is required. Still, title insurance is inexpensive protection for what is often a family’s most valuable asset.
- See Texas Occupations Code §1101.555 and TREC’s “Notice to Prospective Buyer.” ↩︎