Introduction to Title Insurance Policies
Title insurance is purchased to assure real estate buyers, tenants, and lenders that the interest in title they acquire is what they bargained for. A policy of title insurance is broken down into six operative sections, including the risks of loss covered, risks of loss not covered, identification of the insured and property, recorded interests, procedures for claims, and endorsements for additional coverage.
The Six Operative Sections of a Title Insurance Policy
- Risks of Loss Covered (Insuring Clauses): These clauses are based on a completely unencumbered title at the time of transfer and indemnify the named insured for risks of loss related to the title.
- Risks of Loss Not Covered (Exclusions): This section eliminates losses due to use ordinances, unrecorded claims known to the insured, encumbrances created after the policy date, and other post-closing events caused by the insured.
- Identification of Insured and Property (Schedule A): This schedule sets forth the property interest acquired, legal description, date and time coverage began, premium paid, and maximum coverage amount.
- Recorded Interests and Exceptions (Schedule B): Schedule B contains an itemized list of recorded and unrecorded encumbrances known to the title company, which are removed as a basis for recovery under the policy.
- Procedures for Claims (Conditions Section): This section outlines the procedures for making a claim and settlement negotiations or legal actions available to the title company.
- Endorsements for Additional Coverage: Endorsements can be added to the policy for additional coverage or removal of exclusions or pre-printed exceptions.
Understanding Exclusions and Exceptions
Exclusions are risks of loss not covered by the policy, existing outside of it, while exceptions are recorded interests agreed to and assumed by the insured, carved out of the policy and itemized in Schedule B.
Claims and Settlements
The conditions section of the policy outlines the procedures for making a claim and the settlement negotiations or legal actions available to the title company before paying a claim.
