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Buying a new home is an exciting experience, but it can also be a stressful one. Along the way, you might find yourself faced with several new terms and expressions. Title insurance is one of those mysterious real estate terms that will likely crop up when looking at closing costs.

While you’ve perhaps never heard of it before, this is something that needs to be taken seriously. Neglecting to take out title insurance can be a costly mistake that could even see you losing your home and all the money you’ve put into it.

Fortunately, we’ll take a deep dive into what title insurance is, how it works, what it covers, and why you’d be wise to take out a policy.

Title and Title Insurance

To understand what title insurance is, we must first examine what “title” means. “Title” is a legal term that refers to the legal right to own, use and modify a property. The title basically describes who is the ultimate holder of the property.

When you buy a home, the seller signs the deed, which is essentially a transfer document, over to you. With the deed in your name, you now have the legal right to claim the property or land in question. The title is then registered in your name in the government’s land registry system.

Title insurance is designed to protect the lender or buyer from claims, damages and financial losses arising from issues regarding the title of the property just bought. Such cases can range from unpaid liens on the house to conflicting wills and instances in which a fraudulent seller had no legal right to sell you the home.

Often, such problems don’t arise until years after buying the home. A typical example is if a “long-lost” heir returns to the country after being away for many years, they may find they have the right to inherit the house you bought. This can result in a long and costly legal battle to determine whose claim is stronger. Plenty of other issues can also arise, as we’ll see below.