Everything You Need To Know About Title Insurance

Everything You Need To Know About Title Insurance

Written by Matthew Taylor
Fact-checked by Caitlin Wood
Last Updated April 28, 2022

For most Canadians, a home will be their highest-valued asset and largest expense. Closing costs are usually the biggest upfront cost for a house. Included in the closing costs is title insurance, which is an important insurance policy that protects your ownership of the house. 

Just as you insure your home to protect both the physical and internal contents, it’s also important to insure your property’s title. 

What Is Title Insurance?

A title is a document that shows who legally owns a property, so any issues with the property, such as liens or back taxes, are tied to the title. Title insurance protects against issues with a property’s title. Who is protected depends on what kind of title insurance is purchased: lender’s title insurance or owner’s title insurance.

What Does Title Insurance Cover?

What is covered by title insurance depends on the title insurance policy you buy, but generally it protects you against any problems that come with the title for a property. These issues include:

  • Unforeseen issues with the title that were not disclosed by previous homeowners, such as back taxes
  • Survey and public record errors
  • Liens against the property
  • Encroachments on another property
  • Not complying with zoning bylaws
  • Problems with easements on the property
  • Title risk errors made by your lawyer
  • The time between when your home purchase is finalized and when the title is registered with the government
  • Legal fees stemming from title issues
  • Title fraud

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Types Of Title Insurance

There are two main kinds of title insurance: lender’s title insurance and owner’s title insurance.

Lender’s Title Insurance

Lender’s title insurance is a type of insurance that protects lenders from potential loss due to issues with the transfer of property ownership. It’s a type of insurance policy that some lenders may require borrowers to purchase when trying to get a mortgage. Since lenders assume a large portion of the financial risk when providing a mortgage, they may require the borrower to purchase this policy. Essentially, the lender’s title insurance protects them and provides the buyer with some assurance as well that the seller is legally able to transfer the title ownership. 

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Owner’s Title Insurance

Owner’s title insurance is usually purchased by the home seller and not the buyer. It is an optional form of insurance that is meant to protect both the seller and buyer from any title issues that may come up. Typically, this insurance can protect you against nasty surprises like years of back taxes being owed on the property or if someone tries to challenge your ownership of the property. 

Benefits Of Title Insurance 

  • Comprehensive coverage – Purchasing title insurance means that you have comprehensive coverage for issues against your home’s title. If there are surprise back taxes owed or a lien that you didn’t know about, for example, a title insurance policy prevents you from having to pay them off out of pocket.
  • Peace of mind – Knowing you’re covered by these unexpected surprise expenses, it will give you peace of mind when buying your home. Title insurance can protect you from numerous situations including:
    • Forged signatures on the deed that can cause issues with the transfer of property ownership.  
    • Expenses related to a previous owner’s heir trying to claim ownership of the property. 
  • One time cost – One of the greatest benefits of title insurance is that purchasing it is a one-time cost. You don’t need to worry about making monthly payments, so you don’t have to think about it once you’ve purchased it.

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How To Save On Title Insurance

Title insurance can be expensive, often upwards of $1,000, but it is still a wise investment. If you can find a way to save on title insurance, all the better.

There are a few ways that you can save on title insurance:

  • If the title to a property was insured within the last few years, you can generally get a discount on title insurance since the previous title insurer should have researched the title up until title insurance was purchased the first time.
  • You could get a discount on title insurance if the property was sold a few years before you bought it or if you bought it within the last few years.
  • If you are refinancing your home, you should ask for a title insurance discount. Such a discount is known as a “bring-down rate” or “reissue rate”. The worst that the lender can say is no, so ask them for a discount and see what happens.

Do You Need Title Insurance?

Besides protecting a buyer and seller against any potential title issues, title insurance is also a great option to protect against title fraud.

Title fraud is when someone poses as a homeowner when they do not, in fact, own the home. They can get a mortgage, sell the home, or assume the title of the home without the real homeowner’s consent.

You have to pay a few hundred dollars extra to get this protection, but it is well worth it. You, as the buyer, are protected against property risks, including title fraud, back taxes, problems with building permits, liens against the property that the previous homebuyer was responsible for, and encroachments on other properties, as long as you own the property.

Title Insurance FAQs

How do you buy title insurance?

When a property purchase agreement is completed, a closing agent or escrow agent starts the insurance process. Both lender’s title insurance and owner’s title insurance may be needed so that everyone involved in the transaction is protected. Title insurance can be purchased once the deal has closed for a one-time fee.

Is title insurance mandatory and when do I have to purchase it?

While lender’s title insurance may be required by the lender when you apply for a mortgage, the owner’s title insurance is completely optional. That being said, both forms of title insurance is strongly recommended because it can protect both a buyer and a seller from any title-related headaches. 

What happens if I don’t get title insurance?

If you don’t have title insurance, you could be opening yourself up to big problems. Purchasing a home with a mortgage means that the lender will have lender’s title insurance, but if you’re not buying a home this way, the seller might not have owner’s title insurance. Not having either kind of title insurance could mean that you have to pay out of your own pocket to resolve any issues, such as judgements against a property, or risk getting the home foreclosed on.

Bottom Line

Title insurance helps to protect you against many issues related to your home’s property, including back taxes, liens, easements, and non-compliance with zoning bylaws. While title insurance isn’t mandatory by law, certain lenders may require lender’s title insurance before approving you for a mortgage. Given that a home is a high-value investment, it may be best to pay this form of insurance. That way, if there is a problem with your home’s title, your title insurance can cover the damage. Moreover, if you’re spending tens or hundreds of thousands of dollars for a home already, spending a little extra on title insurance can save you from a massive headache.

Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and NewEngineer.com. In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.

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