For title insurance policies, monetary loss from encumbrances is covered if:

The correct option indicates that monetary loss from encumbrances is covered if it is not a known risk to the policyholder. Title insurance is designed to protect property owners and lenders from financial loss caused by defects in title to real property.

When a title insurance policy is issued, it typically covers issues such as undisclosed encumbrances, liens, or other legal claims against the property that are not recorded or flagged in the public records. If the policyholder is unaware of an encumbrance and it is not explicitly listed as an exclusion in the policy, the title insurance will cover the financial loss resulting from that encumbrance.

It is crucial for the policyholder to understand that known risks or specifically excluded items will not be covered. This highlights the importance of thorough investigations and due diligence prior to purchasing title insurance, as it can significantly affect the coverage in place.

With effective title insurance, the peace of mind it offers comes from the knowledge that unforeseen and unknown issues can be mitigated by the policy, ensuring the policyholder is not left vulnerable to unexpected claims or financial losses related to their property title.