Title insurance is something that people often choose not to purchase, largely because they believe that it is optional, and they are trying to save costs wherever they can. Technically, according to the definition of “optional,” that is correct. However, homebuyers really ought to have title insurance, because it is going to provide them with the same protection that the lender gets when they finance a home.
The Lender’s Insurance
A lender is going to have title insurance in case someone happens to have a claim to the property. That lender could lose all the money that they put into the loan if someone is able to take the property because they actually have a claim to the land. The buyer would be out of a home, but the lender would get paid by the insurance company for their loss. Their insurance does not cover the buyer in these circumstances.
The Homebuyer’s Insurance
When a buyers take out title insurance policies, they are protecting themselves against the loss of the deed and title to their homes. When someone has a claim to the property, a buyer will be paid for the money that was put into the loan. These insurance policies will also help a buyer move to a new home in such a circumstance, because that person has been displaced. Opting out of this insurance means a buyer would lose all the money that was already paid in mortgage payments. That person would have to spend money out of pocket, and the equity attained had in the house would vanish.
A lender’s insurance policy is not obligated or designed to cover the buyer. It is designed to protect them, because they fronted the cash for the house. They’d have to recover their investment, and so they must take out these policies to help themselves.
Laws and options also vary from state to state. In some states, you may notice that they are all listed as optional. They must be listed this way because they are separate policies that have nothing to do with the loan you took out on the house. This language can be dangerously confusing, though, because some mistake “optional” for “an unnecessary additional expense.” But you could be stuck without a home if you go through the process without a sufficient title insurance policy.