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Title Insurance - Where Does Your Dollar Go?
Title Insurance: As a homebuyer, the term is probably familiar -- but is it
understood? What is your dollar actually paying for when you purchase a title policy?
Title
Insurers, unlike property or casualty insurance companies, operate under the theory of
risk elimination. Title companies spend a high percentage of their operating income each
year collecting, storing, maintaining and analyzing official records for information
that affects title to real property. Their technical experts are trained to identify the
rights others may have in your property, such as recorded liens, legal actions, disputed
interests, rights of way or other encumbrances on your title. Before closing your transaction,
the title company will proceed to "clear" those encumbrances which you do not wish to assume.
This theory is different from that of most other insurance where, for example,
rates and anticipated losses are based on actuarial studies and premiums are pooled on
the assumption that a certain number of claims will be made. The distinction is important:
title insurance premiums are paid to identify and eliminate potential risks and claims before
they happen. Medical and casualty insurance premiums, for example, are paid to insure against
an unpredictable future event, knowing that risks exist and claims will occur. Furthermore,
title insurance involves a one-time premium, paid when you close the real estate transaction,
while property, casualty and medical insurance require regular renewal premiums.
The
goal of title companies is to conduct such a thorough search and evaluation of public
records that no claims will ever arise. Of course, this is impossible -- we live in an
imperfect world, where human error and changing legal interpretations make 100 percent risk
elimination impossible. When claims arise, professional claims personnel are assigned to
handle them according to the terms of the title insurance policy.
As in all competitive business
environments, rates vary from company to company, so you should make comparisons before
deciding on a particular title company. Your real estate professional can help you do
this. In addition, there are many helpful customer services provided by title companies which
you and your real estate professional may find helpful to your transaction.
The issuance
of a title insurance policy is highly labor-intensive. It is based upon the maintenance
of a title "plant," or library of title records, in many cases dating back
over a hundred years. Each day, recorded documents affecting real property and property
owners are posted to these title plants so that when a title search on a particular parcel
is requested, the information is already organized for rapid and accurate retrieval.
This investment in skilled personnel and advanced data processing represents a major
part of the title insurance premium dollar.
Back to Title and Escrow Information
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