What is Title Insurance in Real Estate?

Title insurance is a form of indemnity insurance that protects property owners and lenders against financial losses arising from defects in the title to real property that were not discovered during the title search. Unlike other insurance that protects against future events, title insurance protects against past events — undiscovered liens, forgeries, errors in public records, unknown heirs, or boundary disputes that existed before the policy was issued. There are two types of title insurance policies: an owner's policy that protects the buyer's equity in the property, and a lender's policy (also called a loan policy or mortgagee policy) that protects the lender's interest up to the outstanding loan balance.

The lender's policy is almost always required when obtaining a mortgage, while the owner's policy is optional but strongly recommended. The owner's policy remains in effect as long as the insured (or their heirs) has an interest in the property, while the lender's policy decreases as the loan is paid down and terminates when the loan is paid off. Title insurance is typically paid as a one-time premium at closing.

A preliminary title report or title commitment is issued before closing, listing any known exceptions to coverage such as easements, CC&Rs, or existing liens that will not be covered by the policy.