Title insurance protects against financial loss arising from defects in a property's title that existed before the policy was issued. Unlike most insurance, which covers future events, it protects against past problems such as undisclosed liens, forgery, errors in public records, or competing ownership claims.
There are two main types. A lender's policy protects the mortgage lender and is usually required, while an owner's policy protects the buyer's equity and is optional but widely recommended. Both are typically purchased with a one-time premium paid at closing.
A title search aims to catch problems before closing, but title insurance covers issues that slip through. If a covered claim arises later, the insurer may defend the title in court or compensate the insured for the loss.