What is title insurance and is it worth it?

Title insurance exists to protect home buyers and owners from financial loss related to defects in a property title, but how does it work, what exactly does it cover, and do you really need it?

Imagine if you purchased your dream home and moved in, only to find out months later that your beautiful deck was added by the previous owner without council approval, and doesn’t meet building standards. You receive a building notice from the local council and suddenly, you find yourself with an unexpected and potentially expensive situation on your hands. This is where title insurance can come in.

How title insurance works

Title insurance is a specific form of insurance that helps protect home-buyers and existing home owners against financial loss in the event that an issue comes to light with the title of their home. These issues can include such things as:

• a lien or a debt on the property
• a competing ownership claim for the property
• a non-compliant structure or unapproved renovation on the property
• an error with boundaries that leads to an issue

When you purchase a home or any new property in Australia, it comes with a title, which is a document that confirms your legal ownership of said property.

During the purchasing process, it is typical to engage the services of a conveyancer or solicitor, who will undertake a title search and check to make sure there are no competing ownership claims on the property, that boundary lines have been drawn correctly, rates have been paid and so on.

An issue may arise in one of these areas, but even if it doesn’t, there are some problems that may not be obvious when purchasing a property.

For example, if a previous owner has undertaken certain renovations without council approval, this may not come to light until months, or even years, down the track. This could prove to be a significant expense, especially if there is a defect, and the local council serves you with a notice to bring the property into compliance.

Situations such as these could be where title insurance comes in.

How is title insurance different from other insurance?

Title insurance differs from standard home and contents insurance in a number of key ways. Firstly, while home and contents insurance are intended to protect the physical structure of your dwelling and your possessions from damage, title insurance is intended to protect you from claims against the property title itself.

These claims can be anything from notices to remedy defects through to a previous owner’s unpaid rates.

Secondly, whereas home and contents insurance policies are ongoing, and require owners to pay premiums each year, title insurance tends to be a one-off payment, after which you will not be required to pay further premiums.

What does title insurance cover?

Title insurance can cover homebuyers and existing homeowners against the financial impact of such things as:

• illegal or non-compliant building works that are discovered on the property, including structures built or renovations undertaken by previous owners without council approval
• errors made by local councils or conveyancing practitioners in reporting certain charges, such as outstanding rates and land taxes due to past underquoting
• compulsory land acquisitions by the government, if before you purchased the property and without your knowledge, the government has the right to acquire all or some of it
• incorrect public records for heritage issues, easements, drainage and sewerage issues
• boundary errors and encroachments
• someone else claiming interest or rights in the property via a mortgage, court order, easement, lease, contract, right of possession or access rights
• someone else lodging a right or interest in the title of the property that prevents you from becoming the registered owner
• another person’s fraud or forgery
• improper signing or registration of documents
• lack of legal right of access to the property by foot or vehicle
• lack of legal water supply or drainage to the property
• restrictive covenant, restrictions or easements that do not appear in public records and limit your use of the property
• zoning violations that prevent you from using the property as your home
• violations of subdivision law, meaning an error occurred in the past when your home was made into its own parcel of land

If you are considering taking out title insurance, it’s important to read the policy documents with regards to limits and exclusions of the cover before you sign up.

What does title insurance not cover?

Title insurance does not cover things that are already covered by a home and contents insurance policy – for example, damage to your property by a fire or a flood.

It’s generally a good idea to take out a separate home and contents insurance policy to cover these risks.

Title insurance also doesn’t cover risks that you create or agree to, and risks that do not cause you a loss.

How much does title insurance cost?

At the time of writing, there are only two insurance providers who offer title insurance in Australia – First Title and Stewart Title Limited.

Title insurance is paid for via a one-off payment, and the amount of this varies according to the location and price of the property. For example, according to the Stewart Title Premium Schedule, the premium for a residential property in Queensland valued at $750,000 to one million dollars would be $959.33 while a property of the same value in the Australian Capital Territory (ACT) would cost $880.12.

If you are seeking a quote for your own property, it’s advisable to contact an insurance provider directly to arrange one.

Is title insurance worth it?

The fact that title insurance is a one-off payment rather than an ongoing cost may make it appealing to some prospective home-buyers or current homeowners. But whether it’s worth it will come down to your individual choice.

If you are pondering whether or not title insurance is worth it, it may be worth consulting your solicitor or conveyancer to ask if the added protection might be suitable for you.

It may also be worthwhile to consult the relevant policy documents and product disclosure statements, to find out exactly what you will be covered for, as well as what things will be excluded, if you take out title insurance.

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