Types of title insurance.
Title insurance comes in two forms, owner's Policy and lender's policy. As they imply, owner's policy covers the owner of the property and lender's policy covers the lender for the life of the loan.
Title insurance covers the named party against any claims any other entity may have as far as property ownership. If another party later claimed they had ownership, title insurance would cover the legal fees for the defense of the title claim and any losses resulting from a valid claim.
The lender's policy:
In simple terms, a lender requires a lender's policy so that the money they lend is covered in case the property doesn't actually belong to the borrower.
The owner's policy:
An owner's policy is valid as long as the purchaser or their heirs own the property. For this reason, owner's coverage is only required at the original purchase. A lender's policy is only good for the life of the loan, so a new policy is required anytime a property is refinanced. The old loan is being paid off, therefore negating the old lender's coverage, so the new lender needs new coverage against claims.
Policy claims are very rare because extensive research is done and any discrepancies are resolved before either policy is issued. However, dealing with the amount of money typically involved in each transaction, it's easy to see why Lenders require it.
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