Should you get title insurance? What you need to know
Home insurance doesn’t offer blanket coverage for all potential claims regarding your home. Fraud, undisclosed liens, and other issues pertaining to ownership fall under title insurance.
This article has been updated from a previous version.
In the legal world, having “title” to property means that you are its legal owner. Title insurance is the policy that protects commercial or residential owners against any losses to the property’s title or ownership, such as fraud, undisclosed liens or any other issues that may prevent you from freely owning the property.
You may have heard about it when you were buying your home or commercial property, thought about it and decided to go without it — because how different could it be from home insurance, anyway?
As it turns out, there’s quite a big difference.
How does title insurance work?
Title insurance protects you from what’s known as “title defects”: issues that could prevent your free and clear ownership of your property. Potential issues include:
- Liens (a claim or legal right to an asset) on your property from previous owners’ unpaid debts
- If a previous owner wasn’t properly discharged from the title before you became the legal owner and tries to take action against the property
- Encroachments as a result of surveys done after the purchase
- Easements over access to your property for a specific purpose
- Zoning non-compliance where the use of the property doesn’t meet the municipal bylaws (think of all those property reassessment signs you see for potential condos)
- Any survey errors not made by you
- Some cases of identity theft (e.g., if someone steals your identity and uses it to get a second mortgage against your property)
While this list might seem comprehensive, title insurance isn’t blanket coverage for your property. It doesn’t protect you from environmental issues, such as soil contamination, title defects you knew about before purchasing your property, zoning bylaw violations, renovations or property additions that you created and liens or encroachments that aren’t in the public records.
Title insurance also doesn’t cover land claims from Indigenous communities. If you own property and that land is returned to an Indigenous group, your title insurance and any claims will no longer be valid.
Title insurance is not a replacement for home insurance. Home insurance protects your home and belongings from damage from the weather, fire and theft.
Owner’s vs. lender’s title insurance
As the name suggests, owner’s insurance protects the property owner from losses listed in the insurance policy. That coverage continues as long as the titleholder owns the property and doesn’t reach the policy’s set limit of coverage.
Lender’s title insurance, on the other hand, protects the lender’s money used to purchase the property (e.g., your mortgage lender). Should your mortgage be invalid, the lender’s policy covers the amount of the mortgage, not the value of the property.
Residential vs. commercial insurance
Residential insurance refers to almost any property you can live in, including houses, condos, rentals, cooperatives, cottages, rural properties, vacant land (as long as it hasn’t been designated commercial) and leased properties. Residential insurance can be bought by new homeowners, added to existing homeowners’ policies, or purchased as a policy for residential mortgage lenders.
Commercial properties covered by title insurance are office buildings, malls/shopping centres, industrial buildings, rental units, apartment buildings, leased commercial properties and warehouses. Individuals and commercial mortgage lenders can buy title insurance for commercial properties.
Before purchasing title insurance for your residential or commercial property, do your research, as each province is different. While title insurance is not mandatory in all provinces, it partners well with home insurance to give you comprehensive coverage for your property (or loan) should anything happen.
About the author
Renee Sylvestre-Williams is a finance and business reporter. In her more than 10 years of journalism, her work has been published in the Globe and Mail, Flare, Canadian Living, Canadian Business, the Toronto Star and Forbes. She also publishes a biweekly newsletter, The Budgette, where she provides financial education for single earners.