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.
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