Title Insurance What is it, and should I have it?

Real estate transactions have a way of creating a lot of paperwork and over time, that paperwork can really start to add up. It's not possible in all cases to keep accurate count on how many times a piece of property has changed hands; if you live in an older part of a city that has been established for generations, the title to your property may go back generations and the land even further than that.

Think of the changing of title in real estate as one long chain. As with any long chain, there are numerous points along the way where there may be weak spots. In the case of real estate, though, a weak spot won't lead to a broken chain, it will lead to a lot of legal work. This legal work will often mean large fees for the defendant (usually the current title owner) as well as possible damages paid out.

These weak links in the real estate title chain occur when something in the past happened to cast doubt upon the true ownership of the title. The current holder of the property may not even have been alive (her grandparents may not have even been alive!) when the defect in question occurred, yet it will be the current owner who is paying the fees to defend her title.

Title insurance is a way of insuring that the fees for research, settlement, and legal fees are paid not by the current title holder but by the insurance company. It is a very handy thing to have when there is a dispute because researching that kind of claim can take years and a lot of hours put in, and usually a claimant is not after the property but after a dollar amount on the current worth.

With that said, it's easy to see why people would want to have title insurance, but does everyone actually need it? Well, statistics certainly don't support it. Title insurance companies have the best return for their shareholders of any of the insurance specialists, spending only about 4.5% of their total premium contributions in actual claims. That's a very, very low figure, one that indicates that title issues do not spring up very often. However, it is worth the price of title insurance if one holds title in a country such as the United States, which uses a documentation, rather than a registration, system for title holders, a system which has several inherent flaws.

If you hold title on land in parts of the industrialized world other than the United States, you are even less likely to need title insurance. Still, if the land or property that you are purchasing does come with a chance of contestation (in Canada land claimed by various native groups is a good example) then you might want to consider taking out a title insurance policy.

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