They share a common mission. Homeowners insurance and title insurance both protect the value of your real estate investment against expensive problems. These two insurance products accomplish very different items in different ways.
Title Insurance: Protects the owner’s exclusive right to own and use the property within the confines of the law. If someone in the future (after you have purchased the property), presents a legitimate claim of ownership, or an unpaid mortgage lien or other valid lien, title insurance will help resolve the issue and pay for the resolution. In short, title insurance protects property owners from any issues that may arise from events that occurred before they took ownership.
Homeowners Insurance: Conversely, Homeowners Insurance (HOI) protects the property, beginning on the date you purchase the property. This insurance product insures the physical property (the structure) against perils. For example, if a hurricane causes major damage to a property, the homeowners insurance policy would step in.
Since title and homeowners policies protect different aspects of a property investment, buyers need both types of coverage. In fact, lenders won’t issue a loan without both types of policies in place on closing day.
More Differences Between Homeowners and Title Insurance
Here are some other key differences between homeowners and title insurance policies:
Number of payments
Buyers pay for title insurance only once: at closing when they buy the property. This coverage lasts as long as you (the new owner) own the home.
Homeowners insurance must be renewed (and paid for) annually. Because a policy lasts only one year, premiums can, and often do, increase annually. That said, homeowners can shop around to search for insurance carriers to find better rates. This is not always easy, especially in areas like South Florida, where hurricane risk is prevalent. Insurers often decline coverage for older properties in storm-prone areas.
Who gets protection?
Homeowners insurance protects the property owner by covering the costs of restoring a damaged home. As an extension of this protection, the lender is also protected from holding a loan on a storm- or fire-ravaged home that’s suddenly worth much less than the loan amount.
Title insurance works differently. Title insurance has two components: Owner’s Policy and Loan (Lender) Policy. Lenders mandate that home buyers purchase a Loan Policy, in the amount of the loan, as an express condition of issuing the loan. Technically, the purchase of an Owner’s Policy is optional (although extremely recommended given the relatively nominal increase in cost to tack on this additional coverage). In the event of a claim, perhaps an unsatisfied mortgage from a previous private lender, only the lender will be protected – up to the amount of their loan, unless the buyer elects to purchase an Owner’s Policy.
What Homeowners and Title Coverages Have in Common
No insurance policy can prevent disasters. Having the best homeowners insurance coverage has never diverted a tornado from hitting a neighborhood.
Instead, insurance products exist to minimize the financial exposure a property owner will face in the event of a future issue. Issues that can often be very expensive to remedy and can significantly undermine the value and usefulness of your property. This is certainly true for both title insurance and homeowners insurance.
This is why we, at Butler Title, recommend both types of coverage even for buyers who pay cash and aren’t required by a lender to buy coverage. To help with the cost of purchasing title insurance, we extend the Butler Rebate to every client, usually saving clients a few hundred dollars (or more) at closing.
Real estate is the largest asset/investment of most people’s lives.
Contact us to learn more about protecting your asset or to schedule your next real estate closing.
Butler Title is a full-service, attorney owned and operated title insurance agency. We keep it simple and focus on what we do best: real estate closings. From first-time buyers to local moguls, BT provides an industry-leading fee structure and unparalleled experience.
P: 954.616.8735 F: 954.206.1097
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