When purchasing a home, there are different types of insurance involved in the buying process. The terms can be confusing, and buyers may not realize that they need different policies to protect against unique situations. While securing homeowner’s insurance seems a given, buyers may overlook title insurance, which is equally important.

The good news is that while homeowner’s property and casualty insurance carries an ongoing premium for coverage, title insurance requires only a one-time payment.

What is Title Insurance?

Title insurance is protection against issues that can threaten your ownership of your property and protection against liability for problems that happened before you purchased the property.

There are two types of title insurance policies. There is a lender’s policy which most banks and mortgage companies will require as part of your loan. The lender will require title insurance that protects their interest in your property up to the amount of the loan. However, in order for your interest in the property to be protected, you must secure an owner’s title insurance policy. These policies address the homeowner’s liability and exceed the loan amount up to the full value of the property.

Most title insurance policies cover: forgery and impersonation, undisclosed (but recorded) prior mortgage or lien, undisclosed (but recorded) easement or use restriction, erroneous or inadequate legal descriptions or surveys, lack of a right of access, silent (off-record) liens, pre-existing violations of subdivision laws, zoning ordinances or building permits, and more.

What is Property and Casualty Insurance?

Homeowners insurance is one type of property and casualty product. Also in this P&C category are other forms of coverage such as renters insurance, auto insurance, and power sports insurance. Property and casualty insurance can also cover losses relating to your home and contents of your home in the event of a covered accident.

Specifically, homeowners insurance covers loss or damage to your home, other structures on your property such as detached garages or approves sheds, personal property kept in your home, loss of use of the home or property, liability, and medical expenses for accidents that occur on your property. The exact terms of your coverage may vary depending on where you live. In some areas, natural disaster protection from floods, earthquakes, and windstorms require separate policies.

Payments for property and casualty insurance may be due monthly, quarterly, or an annual basis. Unlike title insurance, it renews every year and rates may increase based on prior claims or higher levels of perceived risk by the insurance company.

You Likely Need Both

Many people confuse title insurance for homeowners insurance (and vice versa), but the fact is that these two types of insurance policies cover very different risks. It’s important to understand the differences and to be aware that in most states lenders will require homeowner’s insurance in order to issue a mortgage loan. While owner’s title insurance may not be required, countless horror stories of lost ownership rights and costly legal battles make the one-time fee for title insurance extremely reasonable. If you are not sure what is required in your state, contact your closing agent.

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