It’s easy to understand why some people might have questions about the difference between homeowners insurance and title insurance. They are both insurance and they both have to do with your home. However, that is about as far as the similarities go. Homeowners insurance and title insurance are two totally different types of insurance coverage that protect against different risks. We’ll break down what each type of insurance is for and why they are important.
What is Title Insurance?
Once a property title search has been completed and ownership of the property has been verified, the homeowner will then be issued title insurance. This insurance protects both property owners and lenders from losing the property due to any title defects such as liens, lawsuits, unpaid taxes, fraud, or errors as well as covering the costs of defending against future, unforeseen claims on the property.
Buying a home is usually the single largest investment most people make in their lifetime. Protecting that investment from issues of ownership and other hidden title defects is a smart added layer of security for any buyer.
Learn more about title insurance in our blog post: What is Title Insurance?
What Are The Risks of Going Without Title Insurance?
Going without title insurance exposes the parties involved in the real estate transaction to serious risk. The common example is a home buyer purchasing a home and after closing, finding out that the previous owner had unpaid property taxes. Without title insurance, the burden to pay those taxes falls squarely on the shoulders of the new owner. If they cannot pay, they risk losing their home to whoever those unpaid property taxes belong to.
The typical hazards a basic title insurance policy will cover includes the following:
- Claims of ownership by another party
- Flawed or missing records or inappropriate record keeping
- Judgments or encumbrances on the property, like pending lawsuits or outstanding liens
- Improper signatures
- Forgery of documents
- Unrecorded interests by a third party
- Problems associated with a will
While title claims are rare, they can be devastating without title insurance. The problems title insurance protects against are usually claims would be highly unlikely to be caught with a title search alone.
What is Homeowners Insurance?
Homeowners insurance is made up of coverages that may help pay to repair or replace your home and belongings if they are damaged by certain occurrences, such as fire or theft. It may also help cover costs if you accidentally damage another person’s property or if a visitor is injured at your home.
Homeowners insurance typically helps cover:
- Your home
- Other structures on your property
- Personal property within your home
- Liability for injuries or damage to someone else’s property
In some cases, having homeowners insurance is required. For example, If you have a mortgage, your lender will likely require that you have homeowners insurance. However, even in cases where it is not required, homeowners insurance is a great way to protect what is likely your largest financial investment. If something terrible were to happen to your home and you didn’t have insurance, that would be devastating to you and your family.