Title Insurance Explained | The Complete Buyers’ Guide
When purchasing a property, whether residential or commercial, one of the most crucial considerations is ensuring that your ownership rights are protected. This is where title insurance comes into play. It is a specialised type of indemnity insurance that safeguards property owners and lenders against potential losses arising from defects in the title to a property. In this article, we will explore what title insurance is, what it covers, and why it is beneficial for property buyers.
What is title insurance?
Title insurance is a policy that protects property buyers from financial loss due to defects in a title to a property. Unlike other types of insurance that protect against future events, title insurance covers issues that have already occurred in the past. These issues might not be apparent at the time of purchase (regardless of how good your lawyer or conveyancer is) but can surface later, potentially jeopardising ownership rights.
For example, these issues include:
- Renovations that have not been approved by council: Australia’s obsession with renovation has fuelled this risk in recent years. The last thing you need after an expensive property purchase is a letter from council demanding rectification works on your property
- Structures encroaching across a property boundary: The majority of conveyancing transactions are completed without a survey report because most buyers consider these to be too expensive and timeconsuming to obtain
What does title insurance generally cover?
Title insurance typically covers a range of potential issues, including each of the following:
- Illegal building works: This insurance provides cover for certain structures or renovations built by previous owners without council approval up to a particular dollar value (determined by the insurer)
- Incorrect boundary/encroachments: This insurance provides cover for boundary issues and structures that have not been built within the true boundary.
- Errors on property searches & enquiries: This insurance provides cover for loss caused by errors contained in certain public property searches, such as outstanding rates, charges and land tax payable.
- Fraud or Forgery: This insurance provides cover for fraud (at the time of purchase or anytime during ownership).
Why is title Insurance beneficial?
Title insurance offers several benefits that make it a worthwhile investment for property buyers:
- Peace of mind: Knowing that your ownership rights are protected against unforeseen claims provides peace of mind, allowing you to enjoy your property without worry.
- Legal protection: Title insurance covers legal fees and costs associated with defending your ownership rights in court, should a dispute arise.
- One-time premium: Unlike other types of insurance that require ongoing premiums, title insurance generally involves a one-time payment that covers the policyholder for as long as they own the property.
- Protection for heirs: Title insurance not only protects the current owner but generally also extends to heirs, ensuring that the property can be passed down without legal complications.
- Lender requirements: Many mortgage lenders require title insurance as part of the loan agreement to protect their investment in the property.
Real life examples from an insurer
The team at First Title (one of the leading providers of title insurance in Australia) has published the following real life examples:
| What happened | Total payout |
| Case Study 1: After purchasing a home, John identified via a survey report that the neighbour’s wall, eaves and awnings were encroaching on his land. First Title covered the cost to register a boundary realignment on title and compensated John for his land loss | $15,000 paid for encroachments identified in survey |
| Case Study 2: After settlement of her home, Sarah was issued a notice by council stating that the septic tank had been installed without approval. First Title paid for pumping out and cleansing of old septic tank and the design and installation of a new septic tank with required approvals | $60,000 paid for removal of the septic tank which had been installed without council approval |
| Case Study 3: Shortly after settlement, Stephanie was notified that the water rates were not adjusted for at settlement. First Title paid the outstanding water rates for Stephanie. | $1,370 paid for outstanding water rates |
What does this all mean for you?
In the complex world of property transactions, title insurance serves as a key safeguard against potential legal and financial pitfalls.
By covering a wide range of issues that could affect ownership rights, title insurance provides property buyers with the assurance that their investment is protected.
Whether you are purchasing a residential or commercial property, you should consider taking out title insurance as this could be a prudent step towards securing your property rights and ensuring a smooth ownership experience. In any event, it may be worth you consulting with an insurance provider to understand exactly what you would be covered for.
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If you need a lawyer to act for you in relation to the purchase of property, please check out our Buying a Property Information Centre, where you can get more information about our conveyancing services and get an instant quote.
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