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What’s the Difference Between Homeowners’ Insurance and Home Title Insurance? And Do You Need It?

 

If you’re in the market for a home in California, you’re at least passingly familiar with homeowners’ insurance. But home title insurance? That’s another story. And the fact that it’s another story may be news to you. A surprising number of people confuse homeowners’ insurance with home title insurance, mistaking them as synonymous. However, both of these insurance types protect you from wildly different risks. And in California’s fast-paced housing market, settling for just one may not be enough! 

Let’s Get Physical… with Homeowner’s Insurance

Photo credit: Envato

Let’s start by making sure everyone fully understands the role of homeowners’ insurance. It’s an insurance type that specifically protects against physical damage to your home, often including your personal belongings as well. However, depending on your coverage, it could also stretch to offer liability coverage as well, accommodating the costs of an individual being injured on your property. 

In California, homeowners’ insurance can come in handy with the state’s higher-than-average risk for earthquakes and wildfires. In fact, the wildfires that swept through Los Angeles in January contributed further to a statewide insurance crisis as reputable carriers continued to pull coverage across the state. With the sudden increase in cancellations and non-renewals, homeowners’ insurance in California has become highly competitive. The fact that most mortgage lenders require you to have homeowners’ insurance for loan approval only adds to the tension. 

Home Title Insurance – Peace of Mind at Sale Time

Home title insurance is a different beast. Simply put, it’s a coverage that protects your legal ability to sell your home as its owner. You need insurance for that? Yes, but it’s a little more complex. To understand why home title insurance is important, you first have to be aware of everything that can go wrong when trying to sell a home. We mean risks like document forgery, clerical error, surprise liens, and ownership liens. These are all obstacles that won’t pop up in your standard title search, but home title insurance gives you that extra layer of protection. 

Photo credit: Envato

If you’re considering purchasing home title insurance, you’ll be relieved to learn that, unlike most homeowners’ insurance policies, it’s often a one-time payment. Traditionally, it would be rolled up into your closing costs. And, despite being a one-time charge, the home title insurance would cover you for the duration of your ownership of the home. 

Do You Need to Have Home Title Insurance? Sort Of

Most mortgage lenders will require you to have home title insurance in addition to homeowner’s insurance. However, be aware that the coverage mandated by mortgage lenders is what’s called a lender’s title insurance, meaning it only covers their investment. To guarantee that your interest is properly protected, you’ll want to go the extra mile by purchasing the optional owner’s title insurance policy. 

The Rising Cost of Security

It’s worth taking some time to work out whether home title insurance is within your budget. In 2024, premiums rose significantly… about a 10% increase across the state. Our unique housing market is likely to be credited for this surge in premiums. An uptick in homes sold in 2024, combined with homes selling for higher prices, would have resulted in insurance providers collecting more one-time fees than usual. So why would they need to drive premiums up if business is booming? 

Photo credit: Envato

Because it’s the insurance business. And more home title insurance policies mean more claims. And that means more operational costs. California’s title insurers paid out a little more than five percent more in 2024 than they did in 2023. Unfortunately for homebuyers, this is likely a trend that’s here to stay for a while. For premiums to level out or even drop, significant changes in home title insurance operations would be needed to slow down the inertia. Or a grinding halt to real estate activity… and no one’s hoping for that. 


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