What is the purpose of title insurance?

Title insurance serves a critical role in real estate transactions by providing protection against losses arising from defects in the title of the property. This type of insurance is designed to safeguard property owners and lenders from potential claims or issues that may arise after the purchase of real estate. Such defects can include unknown liens, fraud or forgery, errors in public records, or undisclosed heirs who may have a claim to the property, which might not be evident during the title search.

Choosing title insurance means that, in the event a title defect surfaces after the transaction has closed, the title insurance policy will cover legal fees and claims against the property, up to the amount of insurance purchased. This provides peace of mind to the buyer and the lender, knowing they are protected from financial loss associated with potential title problems.

The other options do not accurately represent the function of title insurance. For instance, it does not guarantee the purchase price of the property, cover commissions related to real estate agents, or insure the physical structures themselves. Instead, title insurance specifically addresses the legal aspects of property ownership and ensures that the title is free from defects, which is vital for secure ownership.