Why Buy Title Insurance When Home Is Paid For?

Added January 19, 2009 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: In many places, a home seller has the burden of proving that he or she has good title to the home, which is usually done through buying title insurance. Title insurance companies provide the service of searching the public records and furnishing a report called a title insurance commitment. The cost of title insurance varies greatly from state to state.

Q: A real estate agent recently prepared for us an assessment of the local market and told us what price he thought we'd get for our home.

In this assessment, he also listed the expenses we could expect to pay during the sale. One expense was for title insurance. He said we "couldn't avoid" buying title insurance.

Why should I purchase this insurance when my house is paid for?

A: Unfortunately, your agent is probably right. In many places, a home seller has the burden of proving that he or she has good title to the home. The common way to prove you have good title is to buy title insurance.

Title insurance companies provide the service of searching the public records and furnishing a report called a title insurance commitment. The commitment outlines who owns the property and what, if anything, affects the title to the property. Some of the items that may appear on a title commitment are mortgages, other liens, recorded easements, homeowner association declarations and restrictions.

The cost of title insurance varies greatly from state to state. Depending on whether the state regulates title insurance, the cost is higher or lower. For example, title insurance on a $100,000 home in Illinois would run about $600. In Texas, a similar policy would cost $1,171.

The big mistake is for you to think of title insurance as a real insurance policy. Instead, think about it as a cost of selling your home. Because what you're really doing when you buy that policy is proving to the buyer that you have the right to sell it.

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