At closing the lender requires a loan policy of title insurance for its $340,000 loan. The buyer asks whether that policy protects her $85,000 of equity. Does the lender's title policy insure the buyer's equity?
Correct Answer
D) No: the loan policy protects the lender’s interest, not her equity
D. The lender’s policy does not insure the buyer’s equity. The policy’s beneficiary and covered interest determine protection, not whether its dollar amount exceeds the buyer’s equity. Owner’s title insurance is separate protection for the buyer against covered title problems. Scope and exceptions: Coverage, exclusions, limits and endorsements must be checked in the actual policy. This question does not establish a universal owner-policy amount or premium rule. Source: Who Should Purchase Title Insurance? — https://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/Title-Insurance.cfm
Why This Is the Correct Answer
D. The lender’s policy does not insure the buyer’s equity. The policy’s beneficiary and covered interest determine protection, not whether its dollar amount exceeds the buyer’s equity. Owner’s title insurance is separate protection for the buyer against covered title problems. Scope and exceptions: Coverage, exclusions, limits and endorsements must be checked in the actual policy. This question does not establish a universal owner-policy amount or premium rule.
Why the Other Options Are Wrong
Option A: Yes, up to the $340,000 face amount, which exceeds her equity anyway
A larger face amount does not change whose interest is insured.
Option B: Yes: a loan policy protects both parties to the transaction equally
A lender’s policy does not equally insure the buyer.
Option C: No, but the lender's policy converts to an owner policy at payoff
Paying off the loan does not turn its policy into an owner’s policy.
Exam Tip
Lender’s title insurance protects the lender; owner’s coverage protects the buyer’s covered interest.
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