Do you have an owner's title policy? It's a question I often ask groups of title executives to see their response. Usually theres some chuckling and a little rustling in the seats. But, its a question thats touchy and legitimate at the same time. Doesn't everybody buy title insurance? Isn't it as American as apple pie and the NFL? Well, apparently not!
Problem No. 1: A title policy isn't really an insurance policy; it's technically an indemnity contract. There's a world of difference between the two. Under the terms of a title policy, a policyholder must first suffer a financial loss before being reimbursed by the insurer. The amount of the loss is typically determined by a court after years of costly litigation. Homeowners dealing with a legitimate claim often find it necessary to hire an attorney to negotiate with the title insurance company. Contrary to popular belief, a title policy does not guarantee that homeowners will keep their home.
Problem No. 2: Title policies contain exceptions and exclusions that are rarely explained and generally misunderstood. Title insurers are staffed by armies of claims council that use the limited scope of a title policy to their best advantage. Most claims are rejected based on the technical terms of the title policy. By far, losses suffered by homeowners result from mistakes made by the title agent, title abstractor or surveyor. When this happens, the homeowner has no recourse but to sue the title agent or surveyor who then looks to their E&O carrier. Title insurance protects only against hidden defects, not mistakes or negligence.
There are exceptions. I know of instances where title insurers have paid claims on matters unrelated to policy coverage to appease state legislators and regulators. Title insurers will sometimes avoid large legitimate claims by paying smaller amounts for issues not covered by the policy.
Problem No. 3: Title Insurance is overpriced. Out of every 1 dollar paid for title insurance only 4 cents is used to settle claims. On average, title agents keep 81 cents of every 1 dollar paid for title insurance as a commission. A number of states have identified the pricing issues associated with title insurance when compared to other lines of insurance and are attempting to legislate solutions. I'm generally opposed to governmental intrusion, but title insurers are oligopolists who have effectively blocked the introduction of competitive products.
I don't have an owner's title policy on my own home. Statistically, the probablity of a problem arising is next to nothing. It's a knowlegable risk that I'm prepared to take. I do, however, recommend title insurance to anyone who asks for an opinion. Title insurance has saved many homeowners from financial devastation. While I like some aspects of the product, I also recognize the need for changes that benefit the consumer.
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