Home Insurance Articles
How Home Insurance Policies Cover Title Disputes
2010-07-24
Home insurance policies cover losses when a homeowner is sued for injuries to others on the homeowner's property, or when the property or its contents are lost or damaged due to such events as fires, storms, theft or vandalism. However, if a homeowner suffers a loss because of a dispute over the property's title, a home insurance policy will generally not cover the homeowner's loss. Protection from losses due to title disputes requires a different kind of policy, commonly known as title insurance.
Title insurance and home insurance policies differ in two significant ways. First, as already noted, the two types of insurance cover different kinds of losses. Second, home insurance is effective during a specified term, usually a year (with annual renewals), and must be paid in full in a lump sum or monthly premiums. Home insurance will lapse if the policy is not renewed or payment is not made on time. Title insurance, on the other hand, is typically paid once at the time of settlement on the property and remains in effect as long as the policyholder owns the property. Given the limits to what it covers and the length of time in effect, title insurance is usually cheaper than home insurance for the same property.
When title disputes arise that threaten a homeowner's legal title to the property, the title insurance company will defend the homeowner's claim to the title. Moreover, if the homeowner loses the dispute, the title insurance company will cover any economic loss suffered by the homeowner, up to the limit of the policy. Usually, the policy limit is the price paid by the homeowner at the time of the purchase.
For an additional cost, riders to the standard title insurance policy are often available to increase the coverage limits. An extended rider may be added that increases coverage by a certain percentage for each of the first several years after the property is purchased. This is particularly helpful when a property is likely to increase in market value, either because of market conditions or additions and renovations. Another alternative is a market value rider. This kind of rider increases the coverage from the price at the time of purchase to the fair market value at the time of the loss. Fair market value riders generally add as much as 10 percent to the cost of title insurance.
Homeowners with a mortgage will almost always be required by their lenders to have both title insurance and home insurance to cover, at a minimum, the amount of the mortgage. Even when a home is owned without a mortgage, both types of insurance need to be an important part of a homeowner's financial planning.