What is title insurance, and what's the difference between lender’s and owner’s policies?

• A. Title insurance guarantees against property damage.
• B. A lender’s policy protects the owner's financial interest.
• C. A lender’s policy protects the lender's financial interest; an owner’s policy protects the owner's interest; premium is paid at closing and is typically one-time.
• D. Title insurance is charged annually.

Answer: (C)

Title insurance protects against defects in the title to a property—issues that could challenge who actually owns the property or the lender’s security in the loan. There are two main policies. The lender’s policy covers the lender’s financial interest in the property, typically up to the loan amount, and is usually required by the lender to secure the loan. The owner’s policy covers the owner’s own interest, protecting the owner’s equity against covered title problems. The premium for title insurance is generally paid at closing and is a one-time payment, not something you pay every year. This combination—who each policy protects and the one-time closing premium—is why this option is the best answer.