Is an owner's insurance policy helpful? Here's what every house or condo buyer in Florida should know.
Homeowner's insurance protects an owner from financial losses related to damage to a home and the belongings in and on the property.
It also covers accidents and injuries on the property.
Owners have the option to raise their premiums to insure the full value of their fine art, furnishings, diamonds and collector's items. And it's essential to have a home policy or supplement that covers hurricane and flood damage. Expect high premiums. The risk of sinkholes, hurricanes or coastal storm damage comes along with Florida's pelicans, palm trees and semi-tropical beauty.
Title insurance is a different type of policy, and it addresses a separate set of risks. Title insurance protects your actual entitlement to a piece of real estate. It shows the world that no one else can claim to own the same property.
A mortgage lender expects an owner to buy title insurance, to ensure that the buyer holds clear title to the home that happens to be the collateral for the loan. Enter the title insurance company...
The title insurer issues the policy that confirms clear title. Before the title insurer can do this, it looks for any liens or other burdens on the property or any defects in the chain of title.
One key thing to know is this. When a loan applicant is obliged to pay for a title policy, the applicant is buying the lender's title insurance. This means protecting the financial company and not the individual buyer from any claims that arise after a home is purchased.
Thinking of buying your own title policy? As a buyer, you'll pay twice: first to have the title policy that you must purchase before your lender will extend you a loan, and then to get an owner's policy because you choose to do so.
It sounds like double coverage, but it's significant to have protection for yourself. Why might you need it? Someone could bring a legal action against you as a homeowner, claiming a previous owner owed them money. Perhaps the prior owner missed some tax payments, or there's an unresolved argument about payments for work done on the home before you moved in. And so forth.
Although buyers typically must pay for a title insurance policy in order to buy a home, and although this benefits the lender, the IRS deems this a service to the owner. This and other closing costs are nondeductible expenses.
