Tips for Talking About Title Insurance With Your Clients

Tip #1: Make Sure You Know the Basics About Title Insurance

You can't effectively explain title insurance to your clients if you don't understand it yourself. Take time to learn the fundamentals before these conversations arise.

Title insurance protects property ownership rights against hidden risks that weren't discovered during the title search. Unlike other types of insurance that protect against future events, title insurance covers issues that already exist but remain unknown at closing. These might include forged documents, undisclosed heirs, filing errors, or liens that weren't properly recorded.

There are two types of title insurance policies. The lender's policy protects the mortgage company's investment and is required for financed purchases. The owner's policy protects the homebuyer's investment and is optional but recommended. Both policies are paid for with a one-time premium at closing and remain in effect for as long as the policyholder owns the property.

If you need to brush up on title insurance basics, reach out to your title company. Most offer educational resources for real estate professionals, including presentations for brokerages and one-on-one discussions about specific scenarios.

Tip #2: Start the Conversation Early

Don't wait until closing day to discuss title insurance with your clients. The closing table isn't the right time to start educational conversations, as there are too many documents to review and too much happening for clients to absorb new information effectively.

Start the title insurance conversation when your buyer goes under contract, or even earlier during the home search process. This timing allows you to explain title insurance as part of the overall closing costs discussion, helping buyers understand all expenses they'll encounter.

Starting early gives clients time to research their options and ask questions. Title insurance represents an additional cost that buyers need to factor into their closing expenses, and they deserve time to make an educated decision about their coverage level. Some buyers may want to research enhanced title insurance options or discuss the benefits with family members.

Early conversations also prevent surprises. When clients see title insurance fees on their settlement statement for the first time at closing, they may feel pressured to make a quick decision or question whether they really need the coverage.

Tip #3: Keep it Simple and Relatable

When explaining title insurance, use plain language that your clients can easily understand. Avoid industry terms like "encumbrances," "liens," or "chain of title" without first explaining what they mean in everyday terms.

Start with the basics: title insurance protects your ownership of the property. It covers problems that exist but weren't discovered when you bought the home. Essentially, it’s insurance against someone else claiming they own your property or part of it.

Real-world examples help clients grasp why title insurance matters. Explain that someone could forge a previous owner's signature on a deed, or that a contractor who worked on the house years ago might file a lien for unpaid work. An unknown heir might surface and claim they inherited part of the property, or the previous owner's divorce decree might require them to sign over their interest in the home.

These situations sound unlikely, but they happen more often than people think. Help clients understand that even though the title company will clear all known issues before closing, some problems simply can't be discovered through public records searches. Title insurance protects against these hidden risks that could otherwise cost thousands of dollars to resolve.

Tip #4: Address Misconceptions

Several common misconceptions about title insurance can confuse your clients, so be prepared to address them directly.

Many clients assume the lender's title insurance policy covers them too, but it doesn't. The lender's policy protects only the mortgage company's financial interest in the property. The owner's policy protects the homebuyer. These are two separate policies serving different purposes, not duplicate coverage.

Clients also sometimes confuse title insurance with homeowner's insurance. While homeowner's insurance protects the physical structure from damage like fire or storms, title insurance protects your legal right to own the property. You need both types of coverage because they protect against completely different risks.

Another misconception is that the title search eliminates the need for title insurance. While your title company will conduct a thorough search and clear all known issues before closing, the search can only reveal what's in the public records. Title insurance covers hidden problems that can't be found through any search, such as forged documents, missing heirs, or filing errors. Even the most thorough title search can't predict or prevent these issues from surfacing later.

Tip #5: Explain the Options

Your clients have three options when it comes to owner's title insurance, and they should understand each one before making their decision.

• A standard owner's policy covers the most common hidden risks to title, including forgery, fraud, undisclosed liens, and filing errors that occurred before the closing date. This policy protects against issues in the property's history and covers the purchase price of the home for as long as the owner or their heirs hold the property.
• An enhanced owner's policy provides all the coverage of a standard policy plus additional protections. Enhanced policies cover certain issues that may arise after closing, such as building permit violations, zoning violations, and mechanics' liens filed after the sale. These policies also include inflation protection, automatically increasing coverage as the property value rises over the first five years after purchase. Enhanced coverage typically costs about 10% more than a standard policy but offers significantly broader protection.
• While not recommended, clients can choose not to purchase owner's title insurance. Without this coverage, they would be personally responsible for all costs associated with defending their ownership rights, including legal fees and any financial losses.

Given that title insurance is a one-time cost that provides lifetime protection for their largest investment, most clients choose some level of coverage once they understand the risks.

Tip #6: Be Transparent About Costs

Be upfront with your clients about title insurance costs so they can budget appropriately for closing. Start by contacting your title company for accurate pricing information. At South Oak, you can use the quick quote tool on the website to get a detailed breakdown of all closing costs, including owner's title insurance fees.

Owner's title insurance costs less than 1% of the home's purchase price. The exact amount varies based on the property value and coverage level selected.

Remind clients that title insurance is a one-time fee paid at closing, not an ongoing expense like homeowner's insurance. Once they pay the premium, they're covered for as long as they own the property, with no additional payments required. This makes title insurance one of the most cost-effective types of insurance available.

When discussing costs, put the fee in perspective. Compare it to other closing expenses or to the potential cost of defending a title claim without insurance, which could easily reach tens of thousands of dollars in legal fees alone.

Tip #7: Partner With Your Title Company

You don't need to become a title insurance expert to serve your clients well. Your role is to inform clients about their options and help them understand what title insurance covers, not to sell them on a particular policy.

Let clients know they have choices when it comes to protecting their investment. Present the options objectively and let them make their own decision based on their comfort level and financial situation. You're not trying to convince anyone they have to purchase title insurance, but rather making sure they understand what they're choosing.

Your title company can explain specific policy benefits, walk through real examples of claims, and help clients understand how different coverage levels might apply to their situation. This partnership approach takes pressure off you while ensuring clients get accurate, detailed information from the experts.

When clients have detailed questions or concerns about title insurance, lean on your title company for support. At South Oak Title and Closing, we're always happy to have direct conversations with homebuyers about their coverage options. To learn more, contact us today.