Is Title Insurance Worth Looking Into?

The traditional insurance business revolves around security against future mishaps. But the title insurance policy focuses on protecting you from claims that may arise from what happened in the past. In this blog, we’ll explore the complexities and value of title insurance, commonly known as owner’s title insurance as well. 

Title Insurance In Hindsight

Title insurance (or owner’s title insurance) protects a homeowner from financial losses due to ownership issues of the property. Ownership issues usually arise due to problems or defects with a title while transferring property ownership. If someone sues a homeowner and makes a claim against the home, title insurance protects the current homeowner.  

But how can an insurance agent help people overcome such issues?  

You can reach out to carriers that write title insurance in such cases. These carriers perform background research into properties for any residual issues. Most common issues include unlisted heirs to the property, pending legal action, unpaid taxes, or documentation errors with the deed. According to ALTA, 25% of properties have title defects that need clearing and require curing title before closing. 

After identifying such problems, the next step is to resolve them. This policy will pay for defense expenses if anyone claims the title and compensate for your equity if you lose the case. 

Coverage Provided by Owner’s Title Insurance

 Along with defense expense, basic owner’s title insurance policy covers the following hazards:  

  • Encroachments: Border encroachment disputes that arise from claims made by neighbors. 
  • Liens: Any unpaid obligations to the creditor, that may result in the property getting seized. 
  • Easements: Property rights of someone with an interest in property owned by someone else. 
  • Defects: Threats to an owner’s full right or claim when selling property or due to flawed records. 
  • Encumbrances: Any claim that may surface by a party who is not the owner. 

Is There Really A Necessity?

Many homeowners typically buy an HO3 insurance policy that provides coverage for the safety of their home and their property. Unfortunately, it doesn’t cover title issues. Homeowners overlook title issues because they do not doubt the government regulations regarding property transfers. Despite the strict laws, leakages do exist.  

Due to such leakages, property owners may get the short end of the stick. When you buy a house, you get a warranty deed. The deed would state that the seller is transferring the ownership to the buyer free of any liens. So technically, the seller would have to deal with any ownership defect, if it may arise. And as a buyer, you’re clear of any legal actions in the course. 

But it’s your job, as an insurance agent, to remind your clients that the seller has transferred this risk to the insurance company. Even though the title policy protects the buyers, their stake in the home could be at risk. So, highlight the fact that purchasing an owner’s title insurance policy is a matter of being safe.  

IBIS World states that the annual market growth rate of title insurance in the US between 2015 – 2020 is 3.8%. This percentage is estimated to grow by 1.4% in 2020 alone. Who knows, the next person to face the issue might be your neighbor! Likewise, with over 5,503 businesses conducted, the total revenue in title insurance amounted to US $16 billion in 2018.  

 

 

 

Who Needs Title Insurance?

You might have guessed the answer by now – the legal title owners of a property. But there is another group of customers whom you can target – the lenders. There is a title insurance policy designed particularly for the lenders – lender’s title insurance policy. Yes! The owner’s title insurance we discussed so far protects property owners, and the lender’s title policy protects the lenders. 

Many businesses run their operations in a rented property such as a liquor shop established in a rented building. Commercial property insurance for a liquor shop would seem like an appropriate policy. However, much like the HO3 policy, this policy covers only property damages, not title issues. If title issues arise, the lender will have to face all the legal and financial expenses.  

Likewise, businesses also construct temporary offices in rented lands where title issues can arise. This makes the construction insurance market a viable option for agents as they can sell lender’s policy along with construction insurance policies. And similarly, the policy can be helpful if lenders need protection for their loans too. 

Thus, the lenders require borrowers to purchase a lender’s title insurance policy. In case the seller did not legally transfer the title of ownership rights, this policy would protect the lender. 

According to Statista, the owner’s title insurance for mortgages worth US $400,000, issued by the Bank of America, amounted to US $846. The lender title insurance for mortgages worth US $400,000, granted by the Bank of America, amounted to US $900. This data, as of February 2019, shows how vast the lender’s title insurance market is. 

Therefore, agents can offer owner’s policy alongside the HO3 policy, and lender’s policy along with a commercial insurance property.  

 

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In A Nutshell

The threats that arise from a property claim demands a win-lose situation. Exposure to such risks is not something that owners want. This simple yet effective value proposition of title insurance can help agents insure owners.  

Furthermore, agents can pitch extended policies to interested candidates. Additional policies mean defense against further claims, and more business for the agents 

Be mindful of the pre-existing uncleared issues. This should be the top priority when selling the owner’s Title Insurance. The demand for Title Insurance will never exhaust as there will always be a threat of claims.  

Head over to the comments section below if you have any questions. Let us know if you want any suggestions or advice!  

Learn how you can flourish as an agent after one call!

Schedule a call right now and learn how you can ease your work, sell more, and increase your profits!

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