Why do home buyers need to pay for 2 title insurance policies?

Those buying a home need to look over the closing documents carefully before their scheduled appointment to sign these documents. The settlement statement that explains all of the costs related to the transaction is one of the documents that people should review most carefully.

Yet, some of the details about the financial terms of the transaction may leave people confused or even frustrated. They may notice that they have to pay for not one but two separate title insurance policies, and the cost for that coverage may be one of the biggest contributors to their total closing costs. Why are two different types of title insurance required?

Policies protect lenders and buyers

The reason that there are two separate, sizable premiums for title insurance on the average settlement statement is that someone financing a real estate transaction will require both types of coverage. Lenders will usually not provide financing for a home purchase without protection for that funding. Title insurance guarantees that the lender will recoup what they paid for the property if a third party brings a title claim and takes control of the property. Buyers typically have no choice about securing lender’s coverage.

In some cases, they may be able to forgo buyer’s coverage, but doing so would mean they would lack protection for their own investment in the property if a title claim ever arises. Although only a tiny fraction of buyers ever need title insurance, the coverage is invaluable when claims arise.

While people can’t avoid title insurance in many cases, they do have the right to choose their own title company. Making sense of the different expenses incurred in residential real estate transactions may help people feel more confident about the process of making a purchase. Seeking professional guidance can provide that clarity.