When you buy a home, you almost certainly arrange home and contents insurance. Far fewer buyers think about title insurance, and many have never heard of it at all. Yet for a single, one-off premium, it can protect you from some of the more unpleasant surprises that can emerge after you have bought a property and moved in.
This article explains what title insurance is, what it covers and does not cover, and how to decide whether it is worth considering for your purchase.
What is title insurance?
A property title is the legal record of who owns a property and what rights and restrictions attach to it. Title insurance is a policy that protects you against certain title-related defects, many of them pre-existing and unknown to you at the time of purchase, that a standard conveyancing search might not uncover.
It is a relatively new product in Australia, although it has been common in the United States for decades. There are currently only two title insurers operating here, First Title and Stewart Title. Policies are available to buyers at the time of purchase, and in many cases also to people who already own their property and want cover after the event.
How is it different from home insurance?
This is the most common point of confusion, so it is worth being clear. Home and contents insurance protects the physical building and your belongings against events such as fire, storm and theft. Title insurance is entirely different. It protects your legal ownership and your right to use the property, covering problems with the title itself rather than damage to the structure.
The two are not substitutes. They cover different risks, and most owners who take out title insurance continue to hold ordinary home and contents cover alongside it.
Why does title insurance exist?
NSW operates under the Torrens title system, where ownership is determined by the State-guaranteed land register. It is one of the most secure systems of ownership in the world, and there is a government-backed assurance fund that can compensate owners in limited situations, such as certain errors in the register or fraud affecting ownership.
That protection has gaps, however. The assurance fund generally does not help with matters like unapproved building work left by a previous owner, planning breaches or boundary problems, and these are exactly the kinds of issues that can be expensive to put right. Title insurance was developed to cover that gap.
What title insurance typically covers
Cover varies between insurers and policies, but a policy will generally respond to losses arising from risks such as:
- Unapproved building work. A deck, granny flat or renovation carried out by a previous owner without proper council approval. The insurer may cover the cost of rectifying or removing the structure or obtaining approval, usually up to a capped amount.
- Boundary and survey defects. Structures that encroach onto a neighbour’s land, or a neighbour’s structure encroaching onto yours.
- The registration gap. The short window between settlement and the transfer being formally registered, during which a competing claim could in theory be lodged.
- Fraud, forgery and identity theft that affects your ownership of the property.
- Planning and zoning non-compliance, unregistered easements or covenants, and a lack of legal access.
- Outstanding rates and taxes that you become liable for as the current owner because of an error in the way they were reported when you bought.
Many policies go further and will defend your title if your ownership is challenged, covering the associated legal costs, and some reimburse reasonable rent for alternative accommodation if a covered issue keeps you out of your home.
What it does not cover
Like any insurance, title policies carry exclusions. They will not cover anything you already knew about at the time of purchase. They also generally exclude native title claims, stamp duty and the various foreign buyer surcharges, and strata levies, including special levies. Physical damage to the building and a fall in the property’s market value are likewise outside the scope of the policy. Because the detail differs from one policy to the next, it is important to read the product disclosure statement carefully so you understand exactly what is and is not covered before you commit.
When can you take out title insurance?
There is some flexibility here. A purchaser policy is taken out at the time you buy, and it can offer a degree of comfort where reports such as a survey or building inspection are not available before exchange. An existing owner policy allows you to obtain cover even if you have owned the property for years and never insured the title before. In both cases, the cover lasts for as long as you own the property.
How much does it cost?
One of the appeals of title insurance is its structure. You pay a single, one-off premium at the outset, with no annual renewals and typically no excess to pay if you make a claim. The premium is generally based on the purchase price of the property and is usually modest relative to the value of what it protects, often a few hundred dollars, though the exact figure depends on the property, the provider and the level of cover. Because pricing changes, it is best to obtain a current quote rather than rely on a published figure.
Do you actually need it?
There is no legal requirement to have title insurance, and many property transactions complete without it. The question really comes down to how much unknown risk you are comfortable carrying.
It is important to be clear that title insurance is not a shortcut. A thorough conveyancing process, with the right searches, a close review of the contract, and a survey or building inspection where appropriate, remains your first and most important line of defence, and title insurance does not replace any of it. What it does is add protection for the things that even careful due diligence cannot always catch, such as the unapproved structure nobody disclosed, the fence that turns out to sit over the boundary, or the fraud you could not have foreseen. For many buyers, the modest one-off cost is worthwhile. For others, it may be unnecessary. The sensible approach is to consider it for your particular property, and that is a conversation worth having with your solicitor or conveyancer.
If you are buying into a strata scheme, title insurance is available for strata properties too, and it works alongside the usual strata searches rather than instead of them.
If you or someone you know wants more information or needs help or advice, don’t hesitate to contact us on 0407 534 594 or 0407 171 626 or email info@catronsimmons.com.au.