Quick Answer
An owner's title insurance policy can protect the insured investor against certain covered title defects existing before the policy date, subject to the policy's terms, exclusions, exceptions, and conditions. Investors should consider the risk they retain if they choose not to obtain an owner's policy.
Title insurance works differently from other types of insurance. It protects against certain past events, not future ones. For investors who buy properties with cash or nontraditional financing, understanding what title insurance covers and whether it is worth the cost is an important part of the investment decision.
For a complete introduction to the topic, read our article on what title insurance is and why it matters.
Potential Issues an Owner's Policy May Address
An owner's title insurance policy may provide coverage for certain title defects that existed before the policy date, including forged documents, unknown heirs claiming ownership, improperly recorded documents, undisclosed easements, mistakes in public records, and liens that were not properly released. For a detailed list, see what an owner's title insurance policy covers.
But I Did a Title Search
Some investors ask: "If the title company already did a title search, why do I need title insurance?" The answer is that a title search and a title insurance policy serve different purposes. The search identifies what can be found in public records. The insurance covers certain risks that were not discovered, even with a thorough search. Records can be incomplete, documents can be indexed incorrectly, and heirs may not have come forward. Title insurance exists because no search is perfect.
Investor Question: What Risk Do I Retain Without an Owner's Policy?
An investor who closes without an owner's title insurance policy retains the risk of covered title defects that were not discovered during the title search. If a problem arises, the investor would need to defend their ownership and bear any financial loss personally. For a cash investor, that could mean losing the entire investment. For more on this decision, see do cash investors need title insurance?
Note: This article provides general educational information and does not constitute legal advice or a recommendation to purchase or decline title insurance. Consult qualified professionals for advice specific to your transaction.