Three Insurance Lines at Closing, Three Different Jobs: Lender's Title, Owner's Title and Homeowners

Why this matters: Buyers often assume one policy covers everything. Each protects a different party against a different kind of loss, and only one of them is usually your choice.

Cover: three shields over a deed, a bank and a house, representing three separate policies. Illustration created for mortgage.news; it does not depict a real person, property or document.

Lender's title insurance protects the lender

The CFPB explains that lender's title insurance protects your lender against problems with the title, such as someone with a legal claim against the home. It is usually required to get a mortgage. It only covers claims that affect the lender's loan and does not protect your equity. If someone sues with a claim against your home, you are the first person responsible.

Owner's title insurance protects your equity

Owner's title insurance protects the homeowner if someone claims an interest in the home from before the purchase, according to the CFPB. Its examples include a prior owner's unpaid taxes and contractors who say they were not paid for earlier work.

A CFPB compliance factsheet says the owner's policy is typically not required by the lender and is optional for the consumer. Some title companies offer enhanced owner's policies with added coverage.

Homeowners insurance covers what happens next

Homeowners insurance is a different product. The National Association of Insurance Commissioners explains that it covers damage to your home and belongings from covered events and provides liability protection, and that lenders generally require it for as long as you have the mortgage. Title insurance looks backward at ownership claims. Homeowners insurance looks forward at physical loss and liability.

How they show up and how to shop

The CFPB shopping guide says you can shop for services listed in Section C on page 2 of your Loan Estimate, and your lender must give you a list of providers. Title services are the largest costs in that category. The CFPB says buying both title policies from the same provider usually costs less than buying them separately.

The CFPB also notes that the title premium on your Loan Estimate or Closing Disclosure can differ from the title company's own fee sheet because of how federal forms present the two policies. That does not necessarily mean you are being overcharged. Ask the settlement agent to reconcile the numbers.

Questions to ask

• Is an owner's policy optional in my purchase, and who pays for it under my contract?
• What would a standard and an enhanced owner's policy each cost and cover?
• Does my homeowners policy start on the closing date, and does my lender have proof?

The takeaway

Treat the three lines separately. The lender's policy is usually required, the owner's policy is your decision about past title risk, and homeowners insurance must be in place for future damage before you get the keys.