Title Insurance: Differences between Owner Policy and Loan PolicyBanker Resource
April 18, 2013 — 3,160 views
One of the most commonly asked questions by people who buy title insurance is the difference between owner policy and loan policy. There are a number of doubts in buyers’ minds, like why pay premium for this insurance, what the benefits are, and so on. The basic difference, as the names of the insurance clearly suggests is that the owner policy is for the person who is buying the property from a particular owner. The loan policy, more commonly known as the lender policy, is assigned only to the mortgage lenders. Based on a few factors, here are the key differences between the owner policy and loan policy in title insurance.
You can buy an owner’s title insurance when you want to insure yourself against any defects in the title that you are purchasing. There are a number of defects in the title that the owner’s title insurance will protect you against. It might differ from one policy to another too. In case you run into any problems (right to access the property, lien problems, etc.) after you purchase the title (property), the owner’s title insurance policy will cover you against it.
The loan policy is usually opted by mortgage lenders to add value to the mortgage they have on sale. When a mortgage loan is assigned, the mortgage lender will also buy a loan policy to assure the buyer that the mortgage is free of any hassles. Typically, the loan policy is bought to ensure the buyers in the secondary market that the mortgage is free of any issues and is worth investing in. Also, this policy will protect the lender in case you sell property to multiple buyers.
Inheriting Insurance Coverage
Another important point that you should bear in mind about owner’s title insurance is that the coverage is on the property. So, the owner of the property, you, and in the due course of time, your heir, will be eligible for coverage under this insurance policy. But you should be in compliance with the terms and conditions of the policy. The heir should be legal with relevant document proof supporting the legality.
Loan policy on the other hand will cover only the mortgage lender who has bought the policy. It can be transferred but there is a process for the transfer and you have to go according to that the process.
Terms and Conditions
The terms and conditions for the owner’s policy and loan policy differ significantly. For example, when buying an owner’s policy, the buyer and seller have the option of working out a deal that will allow them to pay the premium on a shared basis. The percentage of sharing is also left to their discretion. But when you buy a loan policy, only the mortgage lender has to pay the premium. Also, the owner’s policy has a clause that allows for addition or deletion of coverage. This is not allowed in the loan policy. These are minor details, but when it comes to the matter of claims, all these details play a vital role in determining the total insurance coverage you will be eligible for.