Owner's Title Insurance?

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reyarey
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Owner's Title Insurance?

Post by reyarey »

We are within weeks of closing on the purchase of a home. We went with the bank recommended title insurance lawyer who has given his preliminary opinion of Title. The attorney needs to review the sellers' trust documents before he can give us the clear to close, which should be soon. This attorney offers optional owners title insurance. They have two options 1) Eagle for $1,324 (more coverage) or 2) ALTA for $1,092. No information was included as to what these policies cover but I assume they are standard in some way? What is the difference and is it truly worth it to pay for the Eagle? We will be the third owners in a community with some restrictive covenants. There have been no issues of this type for this home since it was built in 1999. Any further pearls of knowledge would be greatly appreciated! Thank you for your time :)
talzara
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Re: Owner's Title Insurance?

Post by talzara »

reyarey wrote: Sat Feb 08, 2020 5:48 am This attorney offers optional owners title insurance. They have two options 1) Eagle for $1,324 (more coverage) or 2) ALTA for $1,092. No information was included as to what these policies cover but I assume they are standard in some way? What is the difference and is it truly worth it to pay for the Eagle?
Pick the title insurer that's offering the lowest costs.

Title insurance is not like homeowners insurance.

Homeowners insurance has a loss ratio of about 60%. You get $600 of insurance for $1000 of premium. Since losses are a large percentage of the premium, homeowners insurers compete by reducing their coverage. The less they cover, the lower the premium.

Title insurance has a loss ratio of only 5%. You get $50 of insurance for $1000 of premium. The Eagle policy may be slightly better, but it's not worth the price. Why pay $232 to get an extra $12 worth of coverage?
123
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Re: Owner's Title Insurance?

Post by 123 »

talzara wrote: Sat Feb 08, 2020 12:50 pm ...Homeowners insurance has a loss ratio of about 60%. You get $600 of insurance for $1000 of premium. Since losses are a large percentage of the premium, homeowners insurers compete by reducing their coverage. The less they cover, the lower the premium.

Title insurance has a loss ratio of only 5%. You get $50 of insurance for $1000 of premium. The Eagle policy may be slightly better, but it's not worth the price. Why pay $232 to get an extra $12 worth of coverage?
It doesn't much matter what the actuarial loss rate and payout rates for the insurance company are. If an issue arises you want the insurance to cover the issue/loss.
The closest helping hand is at the end of your own arm.
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unclescrooge
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Re: Owner's Title Insurance?

Post by unclescrooge »

talzara wrote: Sat Feb 08, 2020 12:50 pm
reyarey wrote: Sat Feb 08, 2020 5:48 am This attorney offers optional owners title insurance. They have two options 1) Eagle for $1,324 (more coverage) or 2) ALTA for $1,092. No information was included as to what these policies cover but I assume they are standard in some way? What is the difference and is it truly worth it to pay for the Eagle?
Pick the title insurer that's offering the lowest costs.

Title insurance is not like homeowners insurance.

Homeowners insurance has a loss ratio of about 60%. You get $600 of insurance for $1000 of premium. Since losses are a large percentage of the premium, homeowners insurers compete by reducing their coverage. The less they cover, the lower the premium.

Title insurance has a loss ratio of only 5%. You get $50 of insurance for $1000 of premium. The Eagle policy may be slightly better, but it's not worth the price. Why pay $232 to get an extra $12 worth of coverage?
I'm not an expert, but these sounds the opposite of what I would expect.

The loss ratio sounds like it tells us how much money the insurance company is expected to lose an a policy.
They spread losses across thousands of policies, so this is the average loss.

This has nothing to do with the claim a policy holder makes.
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unclescrooge
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Re: Owner's Title Insurance?

Post by unclescrooge »

reyarey wrote: Sat Feb 08, 2020 5:48 am We are within weeks of closing on the purchase of a home. We went with the bank recommended title insurance lawyer who has given his preliminary opinion of Title. The attorney needs to review the sellers' trust documents before he can give us the clear to close, which should be soon. This attorney offers optional owners title insurance. They have two options 1) Eagle for $1,324 (more coverage) or 2) ALTA for $1,092. No information was included as to what these policies cover but I assume they are standard in some way? What is the difference and is it truly worth it to pay for the Eagle? We will be the third owners in a community with some restrictive covenants. There have been no issues of this type for this home since it was built in 1999. Any further pearls of knowledge would be greatly appreciated! Thank you for your time :)
This notes the difference between the two.
http://mobile.firstam.com/title/homebui ... olicy.html
talzara
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Re: Owner's Title Insurance?

Post by talzara »

123 wrote: Sat Feb 08, 2020 3:11 pm It doesn't much matter what the actuarial loss rate and payout rates for the insurance company are. If an issue arises you want the insurance to cover the issue/loss.
I'll sell you a Double Eagle policy that doubles all the additional coverage limits in the Eagle policy. Instead of covering $25,000 for zoning violations, I'll cover $50,000 for zoning violation. Instead of covering $5,000 for boundary walls, I'll cover $10,000. Everything is doubled.

I'll charge you $10,000 for this insurance. Would you buy it?

If you wouldn't, then the loss ratio matters. It's not just about whether the insurance covers the loss. Price matters. The loss ratio matters.
talzara
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Re: Owner's Title Insurance?

Post by talzara »

unclescrooge wrote: Sat Feb 08, 2020 3:16 pm I'm not an expert, but these sounds the opposite of what I would expect.
What are you expecting?

The loss ratio on title insurance is 5%. The insurance company pays 5 cents in claims for every dollar of premiums that it receives.
unclescrooge wrote: Sat Feb 08, 2020 3:16 pm This has nothing to do with the claim a policy holder makes.
No, it has to do with all the claims that all policyholders make. 5% is a very bad deal. Title insurance makes extended warranties look honest.
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willthrill81
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Re: Owner's Title Insurance?

Post by willthrill81 »

talzara wrote: Sat Feb 08, 2020 12:50 pm
reyarey wrote: Sat Feb 08, 2020 5:48 am This attorney offers optional owners title insurance. They have two options 1) Eagle for $1,324 (more coverage) or 2) ALTA for $1,092. No information was included as to what these policies cover but I assume they are standard in some way? What is the difference and is it truly worth it to pay for the Eagle?
Pick the title insurer that's offering the lowest costs.

Title insurance is not like homeowners insurance.

Homeowners insurance has a loss ratio of about 60%. You get $600 of insurance for $1000 of premium. Since losses are a large percentage of the premium, homeowners insurers compete by reducing their coverage. The less they cover, the lower the premium.

Title insurance has a loss ratio of only 5%. You get $50 of insurance for $1000 of premium. The Eagle policy may be slightly better, but it's not worth the price. Why pay $232 to get an extra $12 worth of coverage?
That confirms my suspicion that title insurance is, in general, a ripoff. Of course it benefits a few people, but for the most part, it's horrifically overpriced.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
talzara
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Re: Owner's Title Insurance?

Post by talzara »

unclescrooge wrote: Sat Feb 08, 2020 3:18 pm This notes the difference between the two.
http://mobile.firstam.com/title/homebui ... olicy.html
There's no reason to pay for this:
  • "Post-policy Forgery": They'll pay the court fees to get the forged deed thrown out. You can self-insure for that.
  • "Expanded Access": This is a house in a subdivision. There's probably a road running by the house.
  • "Subdivision Violation ... up to $10,000": You can self-insure this.
  • "Structural Damage for Mineral Abstraction": Are there oil wells in this subdivision?
  • "Encroachment of Boundary Walls and Fences ... up to $5,000": If you can self-insure $10,000, then you can self-insure $5,000.
  • etc.
The brochure is even more of a joke. What kind of subdivision violation are they insuring? "Compliance with Subdivision Map Act."
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Cubicle
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Re: Owner's Title Insurance?

Post by Cubicle »

willthrill81 wrote: Sat Feb 08, 2020 9:56 pmThat confirms my suspicion that title insurance is, in general, a ripoff. Of course it benefits a few people, but for the most part, it's horrifically overpriced.
My position on all insurances. The driver with 60 years behind the wheel & no accidents paying auto insurance since 18. The healthy person in their 30s paying for health insurance. My parents paying for property insurance for 20+ years with zero claims or insurance payouts. Such is life. "Just in case" because the losses are more than most people can afford.
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willthrill81
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Re: Owner's Title Insurance?

Post by willthrill81 »

Cubicle wrote: Sat Feb 08, 2020 10:59 pm
willthrill81 wrote: Sat Feb 08, 2020 9:56 pmThat confirms my suspicion that title insurance is, in general, a ripoff. Of course it benefits a few people, but for the most part, it's horrifically overpriced.
My position on all insurances. The driver with 60 years behind the wheel & no accidents paying auto insurance since 18. The healthy person in their 30s paying for health insurance. My parents paying for property insurance for 20+ years with zero claims or insurance payouts. Such is life. "Just in case" because the losses are more than most people can afford.
I have no problem with any of those because the ratio of claims being paid to premiums collected is what I would call reasonable. But 1 to 20 does not come close to meeting that standard.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
BillyK
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Re: Owner's Title Insurance?

Post by BillyK »

The loss ratio for title insurance claims is not reflective of the benefit of carrying title insurance. If you have title insurance and there later turns out to be a title problem, the title company and their underwriter is going to do everything in their power to cure the problem without ever making a payoff on a claim. They have excellent real estate attorneys and support staff that I have seen through the years solve title problems the majority of the time without paying a claim. However, as an individual it would be difficult and expensive to hire a real estate attorney to resolve many of the same title issues. That is why it is wise to always to carry an owner’s title insurance policy. Plus, I think a lot of people that aren’t routinely involved in real estate transactions on a daily basis vastly underestimate how common it is for title mistakes to occur even when using attorneys and/or title companies to handle the closing.
talzara
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Re: Owner's Title Insurance?

Post by talzara »

BillyK wrote: Sun Feb 09, 2020 12:36 am The loss ratio for title insurance claims is not reflective of the benefit of carrying title insurance. If you have title insurance and there later turns out to be a title problem, the title company and their underwriter is going to do everything in their power to cure the problem without ever making a payoff on a claim.
The 5% loss ratio already includes the cost to fix title defects. It's what the rest of the insurance industry calls a loss and LAE ratio. It includes all the expenses of adjusting claims, including claims that were settled for $0.

If you look at the amount paid to settle claims, the true loss ratio for title insurance is only 0.5%.
BillyK wrote: Sun Feb 09, 2020 12:36 am That is why it is wise to always to carry an owner’s title insurance policy.
The OP did not ask whether to purchase title insurance. The OP asked whether to purchase an enhanced title policy that adds additional coverage beyond the ALTA policy.

The ALTA policy already covers the actual risks. The enhanced policy is adding coverage that is unnecessary, especially the ones that have coverage limits. Most people cannot self-insure the entire value of their house, but they can self-insure $5,000 for a fence.
adamthesmythe
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Re: Owner's Title Insurance?

Post by adamthesmythe »

I once declined a $200 upgrade to remove one of the exceptions on a title report.

I asked for a quote mostly out of curiosity. I considered the risk to be exceedingly remote and the quote confirmed my thinking.

However I would not have bought without an owner's title policy. I like to take warranty risks on refrigerators but not title risks on houses.
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