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Title
Insurance: As a homebuyer, the term is probably familiar --
but is it understood? What is your dollar actually paying
for when you purchase a title policy?
Title Insurers, unlike property or casualty insurance
companies, operate under the theory of risk elimination.
Title companies spend a high percentage of their operating
income each year collecting, storing, maintaining and
analyzing official records for information that affects
title to real property. Their technical experts are trained
to identify the rights others may have in your property,
such as recorded liens, legal actions, disputed interests,
rights of way or other encumbrances on your title. Before
closing your transaction, the title company will proceed to
"clear" those encumbrances which you do not wish to assume.
This theory is different from that of most other insurance
where, for example, rates and anticipated losses are based
on actuarial studies and premiums are pooled on the
assumption that a certain number of claims will be made. The
distinction is important: title insurance premiums are paid
to identify and eliminate potential risks and claims before
they happen. Medical and casualty insurance premiums, for
example, are paid to insure against an unpredictable future
event, knowing that risks exist and claims will occur.
Furthermore, title insurance involves a one-time premium,
paid when you close the real estate transaction, while
property, casualty and medical insurance require regular
renewal premiums.
The goal of title companies is to conduct such a thorough
search and evaluation of public records that no claims will
ever arise. Of course, this is impossible -- we live in an
imperfect world, where human error and changing legal
interpretations make 100 percent risk elimination
impossible. When claims arise, professional claims personnel
are assigned to handle them according to the terms of the
title insurance policy.
As in all competitive business environments, rates vary from
company to company, so you should make comparisons before
deciding on a particular title company. Your real estate
professional can help you do this. In addition, there are
many helpful customer services provided by title companies
which you and your real estate professional may find helpful
to your transaction.
The issuance of a title insurance policy is highly
labor-intensive. It is based upon the maintenance of a title
"plant," or library of title records, in many cases dating
back over a hundred years. Each day, recorded documents
affecting real property and property owners are posted to
these title plants so that when a title search on a
particular parcel is requested, the information is already
organized for rapid and accurate retrieval. This investment
in skilled personnel and advanced data processing represents
a major part of the title insurance premium dollar.
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