Title insurance is often confused with other forms of insurance such as auto, life or home insurance. The fact is they are more different than alike.
Auto, life or home insurance protects against loss in the event some future event occurs during the short term life of the policy. These types of policies are commonly called casualty insurance. Title Insurance on the other hand are not casualty policies. A title insurance policy does not guarantee the state of title but is an agreement to indemnify the insured against loss. Title Insurance is a contract whereby the insurer agrees to indemnify the insured against specific losses occasioned by on-record defects found in the title and specific off-record defects listed in the policy. The premium for title insurance is paid when the policy is issued and the policy is in force as long as you own the land, interest therein or there is potential for payment of a claim.
The need for title insurance arose historically from the fact that traditional methods of conveying real property did not provide adequate safety to the parties involved. Until a century ago, transferring title to real property was handled primarily by conveyancers, who were responsible for all aspects of the transaction. The conveyancer conducted a title search to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might exist with respect to the property, and based on its search, provide a signed abstract (or description) of the status of the title. Although the conveyancer was generally not a lawyer, that individual was recognized as an authority on real estate law. The origin of title insurance is directly traceable to the limited protection that the work of such a conveyancer provided to the purchaser of real property.
An Offer of Insurance generally takes the form of a Preliminary Report. The Preliminary Report is a statement by the Company to the proposed insured that a specific form of Policy of Title Insurance is being offered and under what Conditions and Stipulations, and Exclusions and Exceptions from coverage are to be made. A Policy of Title Insurance is a contract of adhesion. While some additional affirmative coverages may be negotiated for, such as Endorsements, the terms of the Policy of Title Insurance itself are not negotiable. The proposed insured may make an informed decision, with or without counsel, to accept the Offer of Insurance and purchase the offered Policy of Title Insurance or choose another course of action.