Title insurance is, quite literally, insurance covering losses due to any defects found in the title to your property. At closing, the title company will issue two policies—an Owners’ policy, paid for by the seller and protecting you, and a Lender’s policy, paid for 50/50 by you and the seller and protecting your lender. If a claim or lawsuit arises, the title insurance company will defend you and your mortgage company or cover any financial losses.

What’s Covered? Claims are quite rare, but can arise. Examples of possible covered issues include discrepancies in the legal description, unpaid liens missed during the title search, issues with lien priority, identity fraud, legal incapacity of a buyer or seller, issues to right of access, undisclosed covenants or easements, invalid power of attorney, ownership claims from undisclosed or missing heirs, leases, contracts or options not disclosed to you. In short, lots of stuff. Check the schedule of exceptions on your title policy to see what’s not covered.

If you are purchasing new construction, be sure and check out the topic on Early Issue title insurance—a type of title insurance that protects against liens from contractors and suppliers.