What Is Owner’s Title Insurance, and Do You Need It?

When you finance the purchase of a home or land, you’ll usually have to buy title insurance as a condition of closing on your mortgage loan. Title insurance generally protects your lender financially if, after closing, someone makes a legal claim against your property. Owner’s title insurance is optional and protects you, as the buyer, from the financial impact of a claim.1

Here’s what you should know about owner’s title insurance, how it works, and how much you’ll pay for coverage.

What is owner’s title insurance?

Owner’s title insurance can pay for your legal costs, including court fees and judgments, if someone makes a claim against your property once you close on your home or land purchase. If a title issue comes up after the fact, the insurance will cover the cost of your defense against any claims and reimburse any financial losses you incur as a result.2

Owner’s title insurance vs. lender title insurance

Title insurance is a vital component of your home purchase because it protects you financially against any undiscovered claims against the title. The more common type is the lender’s policy that homebuyers purchase for lenders. The second type is an owner’s title insurance policy the homebuyer purchases for themselves. 

About 75% of homeowners have their own title insurance, said Steve Gottheim, general counsel for the American Land Title Association, in an interview with the Washington Post. Here’s a look at how the two policy types compare.3

How owner’s title insurance works

You or your agent will order the title work immediately after you have an offer accepted, so it’s a good idea to select a company well in advance. Shop around to compare rates for the title search and closing services as well as for the owner’s and lender’s title insurance policy premiums.

After a seller accepts your offer and you or your agent submit your contract to the title company, it’ll begin the title search. The search consists of an examination of public documents and other records to verify that the seller has a legal right to sell the property and that no other person or entity has a claim that could interfere with the transfer of clear title.

The intent is to verify that the sale is insurable against title claims made after closing for issues that began before you closed. 

Your owner’s policy typically covers the purchase price, and it remains in effect for as long as you own your home. The lender’s policy remains in effect until you repay your loan in full. But the coverage limit drops as you pay down your balance.

What owner’s title insurance covers

Owner’s insurance covers claims on your home’s title for situations that occurred before your sale closed. So, it’ll cover a boundary dispute over a neighbor whose driveway was partly on your property before you owned it. It won’t cover encroachment from a neighbor who expands their driveway onto your property after your sale closes. 

Here are more examples of what owner’s title insurance covers, per the American Land Title Association (ALTA) standard policy form:

• Forged and fraudulently executed documents

• Failure to property sign, notarize, or deliver documents

• Encroachment by a neighboring property that a survey wouldn’t identify

• Landlocked property, which is property that has no legal access — for example, you have to walk through someone else’s property to legally access yours

• Zoning, ordinance, and other regulatory violations that were previously identified by the authority responsible for enforcement

• Unpaid property tax assessed before you buy the home

• Government forfeiture

• Deed errors, including misfiling and falsifications

What owner’s title insurance doesn’t cover

Items the policy doesn’t cover fall under two categories: exceptions to covered losses, which the title company lists in the policy, and policy exclusions.

The ALTA basic policy lists the following exclusions:

• Violation of government regulations related to occupancy and use of the property that enforcement authorities had not identified before the closing

• Environmental protection and remediation

• Encroachments that a survey would’ve discovered

• Defects on the title that the buyer knew about or agreed to before buying the home

• Fraudulent sale in connection with a federal bankruptcy or other law protecting creditors’ rights

• Tax liabilities that become due after the closing date

• Discrepancies over the size of the home or land

• Liens, easements, and other encumbrances that weren’t recorded, and so aren’t public records

Cost of owner’s title insurance

The owner’s title insurance premium is a one-time fee based on millage — a certain amount per thousands of dollars of value. Rates are often state-regulated.

In Florida, for example, homebuyers pay $5.75 per $1,000 of value up to $100,000 for owner’s policies. They pay an additional $5 per thousand dollars of value after that, up to $1 million in coverage, according to the website of Jimmy Patronis, the state’s chief financial officer.5

Fannie Mae estimates the total cost of title insurance, including lenders policies, to be as much as 1% of the purchase price. But like other types of insurance, your title insurance company might offer optional coverages, called endorsements. Adding these coverages could increase your rate.

Who pays for owner’s title insurance?

Sellers pay the cost of the owner’s title insurance policy in about half of U.S. states, the Washington Post reported. Buyers and sellers share the cost in four additional states. Elsewhere, the buyer pays or negotiates with the seller to determine who will pay.

Keep in mind that owner’s title insurance premiums are only one part of the title company’s fees. The title search, loan policy, and closing services are separate from the owner’s policy premium.

Is owner’s title insurance worth it?

Owner’s title insurance can help you avoid future headaches and protects your property investment. The average cost of a title policy claim is more than $26,000, including owner and lender policies, according to ALTA. Fraud and forgery claims average $143,000. That’s a lot of coverage for a relatively modest premium you pay just once.6

How to buy owner’s title insurance

Title insurance is available through title insurance companies. Your state might set premiums, but the costs of other services your title company provides likely are not. That means shopping around to compare prices for the title search and closing services can save you money.

A good place to start is with your real estate agent or attorney. They might have recommendations you can check out. Also ask family and friends in your area who recently purchased or refinanced a home. You can vet these recommendations by checking the companies out on your state’s insurance department or equivalent agency.

How to file an owner’s title insurance claim

Title insurance companies pay out far less of the premiums they take in on claims than other types of insurers because the companies’ title searches are so thorough — just 5% of premiums go to claims versus 70% for other insurers, according to the Government Accounting Office. So, claims are relatively uncommon. But a number of situations warrant filing one.

One example is the previous owner’s failure to secure the building permits needed for work they did on the home. If the work escapes notice until you go to sell the home, you might have to restore your home to its prior condition. TItle insurance would cover the cost.

The steps to file a claim may vary by insurer, but these steps are typical:

1. Gather all documentation you have related to the issue. Examples include your title insurance policy, your sales contract, and deed.

2. Contact the title insurer’s claims department for instructions on how to file a claim. 

3. Submit forms and documentation requested by the title insurance company, along with a statement explaining the title and how you’ve documented them. 

After the title company investigates your claim, it’ll make a decision as to whether or not it’s valid. If it is, the policy will cover legal costs you incur in defending your property against the claim.

The title company will remedy the issues that triggered the claim and either pay your expenses outright or reimburse you for money you pay out of pocket.

Owner’s title insurance FAQs