Title Insurance 101: What It Is & Do You Need It?

So after days, weeks, or maybe even months of searching, you’ve finally found your dream home. Congratulations! You’re about to own a home—perhaps even your first home—and while that’s an exciting new venture to look forward to, there’s a lot to take care of before possession day. There seems to be an endless list of things to remember, from meetings with your real estate lawyer to securing your mortgage. And to top it all off, you’ve just now come across “title insurance” but have no idea what it is or whether you need it.

What is Title Insurance

First and foremost, to understand title insurance, you will need to understand what a title is. Essentially, a title is just the legal term for the right to own the property. So when you buy a home, this title is transferred to your name, and this right becomes yours.

With that being said, title insurance is an insurance policy that specifically covers issues related to that ownership. It protects you as a homebuyer against any losses incurred due to issues that existed at the time of the policy’s effective date and before, lasting until the home is sold.

Title Insurance vs. Home Insurance

Whereas title insurance protects your legal ownership of the property, home insurance covers your home itself. As ongoing insurance, it requires a monthly payment to keep the policy in place and will often be insisted upon by your mortgage lender to secure your financing before possession day. Title insurance, however, only requires a one-time premium based on the property’s value and is entirely optional to you when buying a home. (Though, with the added reassurance it offers, you may feel more comfortable having it just to say that you do!)

What Does Title Insurance Cover?

Depending on the title insurance you purchase, your policy will likely cover the following common title defects, should you find yourself affected by them:

• Title Issues - These can include defects with the title that may have rendered it unmarketable if it were to have been known at the time of sale. This could also include someone else having a claim to the title. 

• Tax & Utility Arrears - Outstanding balances left by the previous owner on their property taxes or utility bills that are now in arrears. 

• Survey Defects - If an up-to-date survey was not completed and a new one reveals that the property would have been unmarketable in its current condition.

• Zoning Violations - The property has been used outside of its approved zoning (i.e. residential living in a commercially-zoned area) without the approved permits.

• Lack of Building Permits - The previous owner completed a renovation or extension of the home without the required permits that the municipality now requires to be remedied.

• Encroachments - A shelter or laneway that was added is sitting either partially or entirely on a neighbouring property and needs to be moved.

• Fraud - Someone forges your signature or identity to take your title or register a fraudulent mortgage in your name.

• Gap Coverage - Protects you if, for whatever reason, the title can’t be transferred to you on possession day.

Of course, depending on your title insurance, you may be subject to additional coverages. This is worth discussing with potential insurance providers should you be interested in shopping for title insurance when buying a home.

 

When buying a house, especially as a first-time homebuyer, it can be challenging to sort through what seems like an endless list of additional costs you could be facing. And with home insurance already likely being required by your lender, it could be easy to toss away another entirely optional insurance. But in weighing out the costs and benefits of title insurance, you may just find that the added peace of mind offered by this one-time premium may just be worth it in the long run of owning your new home!