Types of Title Insurance Policies: Owner vs Lender

What are the Different Types of Title Insurance Policies?

The types of title insurance policies you’ll encounter primarily fall into two categories—owner’s policies that protect a homeowner’s ownership and equity, and lender’s (mortgagee) policies that protect the lender’s security interest.

Within those categories, coverage can be “standard” or expanded (ALTA/extended) and tailored with endorsements for specific risks like survey issues, unrecorded liens or access.

Title insurance is typically a one-time premium paid at closing that helps provide long-term protection against many title defects arising prior to the purchase.

Lender's Policy

If you've ever mortgaged a home, chances are you were required to purchase a title insurance policy. This lender's policy (often called a loan policy) is required by most lending institutions as a way to help insure their security interest in the property. This policy helps protect the bank or other lending institution for as long as they maintain an interest in the property (typically until your mortgage is paid off).

Owner's Policy

However, as a buyer, you also want to protect your investment and the ownership rights that come with it. This is why it can be wise to consider purchasing an owner's policy of title insurance, which will help protect your rights as the homeowner, generally for as long as you or your heirs have an interest in the property.

Both title insurance policies not only pay valid claims and legal fees to defend against hidden title issues but also help to decrease ownership risks by providing a thorough title search prior to the issuance of either policy.

Customs

There are various customs regarding the purchase of title insurance. In some areas of the country, it is customary for the seller to purchase the owner's policy for the buyer, whereas in other areas the buyer purchases this important protection.

Refinance Transactions

If you're considering refinancing your mortgage, you may be surprised to see that you are required to purchase a new lender's policy of title insurance. This is because a lender's policy only provides coverage for the life of a loan. When a home is refinanced, the life of one loan ends and another begins. Thus, a new lender's policy for title is required. Because an owner's policy provides coverage, generally for as long as you or your heirs hold an interest in the property, there is no need to purchase a new owner's policy when refinancing.

Which Title Insurance Policy Should I Choose?

Title insurance is a one-time, preventative safeguard that seeks to protect two distinct interests: the owner’s equity and the lender’s security. While standard owner and lender policies cover many common, recorded title risks, extended policies and endorsements give you targeted protection for survey issues, unrecorded claims and other specific concerns.

Because coverage and who pays vary by state and circumstance, talk with your title officer or agent about which policy and endorsements make sense for your property. Getting the right title insurance at closing is one of the simplest ways to help protect your ownership for years to come.