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Title Insurance - Where Does Your Dollar Go?
Title Insurance: As a homebuyer, the term is probably familiar -- but is
it understood? What is your dollar actually paying for when you purchase a
title policy?
Title Insurers, unlike property or casualty insurance companies, operate
under the theory of risk elimination. Title companies spend a high
percentage of their operating income each year collecting, storing,
maintaining and analyzing official records for information that affects
title to real property. Their technical experts are trained to identify
the rights others may have in your property, such as recorded liens, legal
actions, disputed interests, rights of way or other encumbrances on your
title. Before closing your transaction, the title company will proceed to
"clear" those encumbrances which you do not wish to assume.
This theory is different from that of most other insurance where, for
example, rates and anticipated losses are based on actuarial studies and
premiums are pooled on the assumption that a certain number of claims will
be made. The distinction is important: title insurance premiums are paid
to identify and eliminate potential risks and claims before they happen.
Medical and casualty insurance premiums, for example, are paid to insure
against an unpredictable future event, knowing that risks exist and claims
will occur. Furthermore, title insurance involves a one-time premium, paid
when you close the real estate transaction, while property, casualty and
medical insurance require regular renewal premiums.
The goal of title companies is to conduct such a thorough search and
evaluation of public records that no claims will ever arise. Of course,
this is impossible -- we live in an imperfect world, where human error and
changing legal interpretations make 100 percent risk elimination
impossible. When claims arise, professional claims personnel are assigned
to handle them according to the terms of the title insurance policy.
As in all competitive business environments, rates vary from company to
company, so you should make comparisons before deciding on a particular
title company. Your real estate professional can help you do this. In
addition, there are many helpful customer services provided by title
companies which you and your real estate professional may find helpful to
your transaction.
The issuance of a title insurance policy is highly labor-intensive. It is
based upon the maintenance of a title "plant," or library of title
records, in many cases dating back over a hundred years. Each day,
recorded documents affecting real property and property owners are posted
to these title plants so that when a title search on a particular parcel
is requested, the information is already organized for rapid and accurate
retrieval. This investment in skilled personnel and advanced data
processing represents a major part of the title insurance premium dollar.
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