What is title insurance and do I need it?
Title insurance exists to protect homebuyers and owners against financial loss related to defects in a title title, but how does it work, what exactly does it cover, and do you really need it?
Let’s say you bought a dream home and moved in, only to find out months later that your beautiful patio, where you sit and enjoy your new water view, was added by the previous owner without community approval and didn’t meet building standards. You receive a building permit from the municipal administration and suddenly you are faced with an unexpected and possibly expensive situation. This is where legal expenses insurance can come in.
What is title insurance and how does it work?
Title insurance is a specialized form of insurance that protects homebuyers and existing homeowners from financial loss should an issue with the title of their home come to light. These problems can include such things as:
- a lien or debt on the property;
- a competing title to the property;
- a non-compliant structure or unauthorized renovation of the property; or
- a bug with limits that leads to a problem.
When you buy a home or new property in Australia it comes with a title, which is a document confirming your legal ownership of that property. During the buying process, it is common to enlist the services of a mortgage lender or attorney who will conduct a property search and verify that there are no competing title claims to the property, that the boundary lines have been correctly drawn, that the prices have been paid, and so on .
A problem may arise in any of these areas, but even if it doesn’t, there are some issues that may not be apparent when buying a property. For example, if a previous owner undertook certain renovations without council approval, it may not come to light until months or years later. This can prove to be a significant hassle, particularly where there is a deficiency and the local authority is sending you a notice to bring the property into conformity.
Situations like the above could lead to title insurance coming into play.
How is title insurance different from other types of insurance?
Property insurance differs from standard household and contents insurance in a few important ways. First, while home insurance is designed to protect the physical structure of your home and property from damage, title insurance is designed to protect you from claims arising out of the title deed itself. These claims can range from notices of defects to unpaid installments from a previous owner.
Second, while home and household insurance policies are ongoing and require owners to pay premiums each year, title insurance is usually a one-time payment after which you don’t have to pay any additional premiums.
What does property insurance cover?
Homeowners insurance can protect homebuyers and existing homeowners against the financial impact of things like:
- illegal or non-compliant construction work discovered on the property, including structures or renovations constructed by previous owners without council approval;
- Errors by local government or conveyancing professionals in reporting certain charges, such as B. outstanding interest rates and property taxes due to past under-listings;
- Government land acquisition where the government has the right prior to acquiring the land and without your knowledge to acquire it in whole or in part;
- incorrect public records on heritage issues, easements, drainage and sewerage issues;
- boundary errors and interference;
- someone else asserting an interest in or right to the property through a mortgage, court order, easement, lease, contract, option, title or right of access;
- someone else asserting a right or interest in title to the property that prevents you from becoming the registered owner;
- fraud or counterfeiting by any other person;
- improper signing or registration of documents;
- lack of legal right to access the property on foot or by vehicle;
- lack of legal water supply or drainage on the property;
- restrictive agreements, limitations or easements not appearing in public records that limit your use of the property;
- zoning violations preventing you from using the property as your home; and
- Violations of the division law, which means that there has been a mistake in the past when your house was converted into its own property.
If you are considering buying property insurance, it is important to read the policy documents for the limits and exclusions of coverage before signing up.
What Does Property Insurance Not Cover?
Property insurance doesn’t cover things that are already covered by home insurance – for example, damage to your property from fire or flood. It’s generally a good idea to get separate home and contents insurance to cover these risks, and property insurance also doesn’t cover risks you cause or agree to and risks that don’t harm you.
How Much Does Property Insurance Cost?
At the time of writing there are only two insurance providers offering title insurance in Australia – First Title and Stewart Title Limited. Title insurance is paid for through a one-time payment, the amount of which varies depending on the location and price of the property. For example, under Stewart Title’s premium plan, effective March 1, 2021, the premium for a Queensland residential property valued at $1.25 million to $1.5 million would be $1,678.83, while a property of the same value in New South Wales would cost $1,439.01. If you are looking for a quote on your own property, it is advisable to contact an insurance provider directly to arrange a quote.
Is legal protection insurance worth it?
The fact that title insurance is a one-time payment and not an ongoing expense may make it attractive to some prospective homebuyers or current homeowners. However, whether it is worth it depends on your individual choice. If you are considering whether or not property insurance is worth it, you should consult your attorney or agent to ask if the additional protection is right for you. It may also be worth consulting the relevant policy documents and product disclosure statements to find out exactly what you cover and what things are excluded when you buy property insurance.
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