Homeowner’s Insurance and Title Insurance

It’s not uncommon for potential homeowners and current homeowners alike to become confused about homeowner’s insurance versus title insurance. While they are two completely and unrelated insurance policies, they both have to do with buying and owning a home. In general, homeowner’s insurance protects for disaster and theft while title insurance protects your ownership in the real property. Your home is usually your biggest asset and both hazard insurance and title insurance serve as crucial vehicles to protect this large investment. Let’s further discuss what each respective insurance does and how it works for the homeowner.

Homeowner’s Insurance

Homeowner’s insurance protects your home from any loss, damage and other assorted risks. You may find homeowner’s insurance also called hazard insurance. Various liability issues, personal property kept in the home, medical expenses for accidents occurring on the property and additional structures existing on the property are all typical items that are covered under a hazard insurance policy. Fire, storms, theft, vandalism and most wind damage are all standard events that are covered by homeowner’s insurance. Some homeowner’s insurance covers windstorms such as tornadoes and hail storms as additional items covered. Standard policies usually exclude certain items like flooding, earthquakes, landslides, defective trademan’s work and a few other items. Flood insurance may be purchased (separate from a hazard policy) if a property lies in a flood plain and will probably be required by the lender. Not only does a homeowner’s policy include property insurance, but it also includes property liability protection to protect the homeowner.

Homeowner’s insurance policies will be different from each insurance company in that it will cover different items and values on the home, other structures on the property and personal property. Additional endorsements/riders can be attached to the policy. Insurance is based on the cost of replacement with an inflation factor or cost index included. Discounts on home insurance can be utilized in some cases where a home is near a fire station, fire hydrant, has an alarm system installed, a hurricane/tornado shelter in place or other special factors that may reduce the risk of damage to the property. In essence, homeowner’s insurance is a legal contract between the insurance company and the names of the insured.

Title Insurance

Title insurance is different from homeowner’s insurance in that it protects against property damage or loss that may result from a lien, encumbrance or title defects. A title search and title insurance are an essential part of any home buying transaction. Once a sales contract is accepted, then a title professional will search through public records to see if any problems exist with the homes title.

Typically a preliminary title search (also referred to as a prelim for short) is performed initially when a house is either listed or when it is put under contract. Many title problems are unknown to homeowners and may surface during the preliminary title report. Issues like unpaid taxes or an unpaid contractor’s lien may be found. In excess of 50% of all title searches come back with an issue being reported on the initial chain of title. Your title insurance company will start to work on clearing up any issues by taking corrective actions to fix any problems with the chain of title to the property or related issues. After a prelim is completed, it still may not turn up everything because paperwork could have been filed under the wrong last family name or property. An owner’s policy is also usually required by the lender that will protect the buyer should a covered title problem surface.

Virtually all traditional lenders require title insurance and by having title insurance, a homeowner has insured legal possession to the property. Title insurance from a major carrier protects both the homebuyer and the lender. While there are a variety of title insurance policies available, the two typical policies are the buyer’s/borrower’s policy and the lender’s policy.

Breaking Down the Costs

There is a difference in how the two types of insurance are paid. Homeowner’s insurance is usually paid through annual or monthly premiums while title insurance is purchased through a one-time premium and lasts as long as you own the property. On average homeowner’s insurance costs $700 annually, whereas title insurance is a one-time, upfront fee that averages around one thousand dollars.

Homeownership does come with some risks and homeowner’s insurance and title insurance are two separate insurance policies that can help you keep your most important investment safe. An easy way to remember the difference between the two types of insurance is this… title insurance covers items that already exist on the title of the property whereas homeowner’s insurance is used for future events.

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