What is the purpose of title insurance?

The purpose of title insurance is to protect buyers and lenders against defects in a property's title. This type of insurance ensures that any issues arising from previous claims, liens, encumbrances, or other flaws related to the title are covered. If an undiscovered defect surfaces after the purchase, title insurance provides financial protection by covering legal costs associated with resolving the issue, or compensating the insured party accordingly.

For those engaging in real estate transactions, having title insurance is crucial since it helps ensure that the title to the property is valid and free from serious issues that might affect ownership rights. This protection is typically especially important for lenders, as any title defects can jeopardize their financial interests tied to the property.

Other options such as protecting sellers during the closing process or facilitating negotiations do not encapsulate the primary function of title insurance, which specifically addresses potential challenges related to title ownership. Similarly, while providing a mortgage loan is a critical component of real estate transactions, it is unrelated to the protective function of title insurance.