Owner's Title Insurance- Do I really need it?

[northatx]

Thanks for the reply Ariel. Isn't the lender's title policy based only on the mortgage amount? For example, wouldn't lender's title insurance on a $150k house with no down be the same as a $150k mortgage on a $500k house?

[Ariel_Austin]

Lender's Policy covers the amount they lent on the property. Owner's policy normally covers the amount of the home (purchase price including loan amount and down payment). I based my numbers off the owner's policy being $1,716.00.

[IC_deLight]

Originally Posted by northatx

OP here following up. I decided to decline owner's title insurance. I think its a racket and greatly overpriced considering the amount they pay out in claims.

I put a large amount down and my loan value was $150k. Lender's title insurance cost me $1,716, which included $375 for "Settlement or closing fee". Only $193 went to the underwriter. So $1613 went to the title company for issuing the title insurance and only $193 went to actually insuring the title. Ridiculous.

The underwriter and closing costs are not insurance premiums. Subtract those from the $1,716 to get a $1,148 paid premium (this should have been its own line item). In other words the title insurance premium paid was approximately $1,148, not $193.

From the TDI tables, the first $875 of that covers a $100,000 loan amount. That leaves $273 for amounts above $100,000. From the TDI tables a premium of $273 covers a valuation of $273/.00554 = $49,277. Add the two together: $100,000 + $49,277 = $149,277 and you can see that your lender's policy premium was right on par for covering a $150,000 loan. The lender's policy covers the loan amount not the value of the house.

[hodgieok]

Originally Posted by northatx

If so much work is done researching the title to warrant the high price of issuing the title insurance, why would they charge nearly the same when issuing title insurance for the next owner. Shouldn't all the research already be done with the except being possible liens by the previous owner?

You've hit the nail on the head here. Sure could say the same thing about the fact that you generally have to buy a new full-price policy when refinancing, transferring title into a living trust, etc. Surely there should be a discount since the bulk of the work has been done. But of course, there is no discount since only a tiny portion of what you pay for title insurance actually goes to pay for title insurance.

And the sad thing is that most people in the industry agree with you. Title insurance is overpriced and over regulated, but here to stay. That's a shame, because if it was fairly priced you would have likely purchased a policy.