What is title insurance and why do I pay for it?

Title insurance protects against ownership problems from the home's past – an unknown lien, a forged signature, an unpaid contractor, a missed heir, or a clerical error that could challenge your right to the property. There are two policies: a lender's policy (required, protecting the bank's stake) and an owner's policy (optional but recommended, protecting your equity). Unlike most insurance, you pay a one-time premium at closing rather than ongoing premiums, and it covers issues that arose before you bought, not future events. If a covered claim surfaces years later, the insurer defends your title and pays losses up to the policy limit. The owner's policy is usually a modest add-on relative to the protection, and in many areas you can shop or negotiate the cost.