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Is title insurance a waste of money?
Title insurance is a one-off cost that can offer substantial protection from legal issues related to your property, from encroachment to illegal works.
A title insurance policy is an optional insurance product that protects your ownership rights in case of fraud or other illegalities. It's something your conveyancer normally suggests you purchase prior to settlement.
Is title insurance a waste of money? Only you can answer that, but it's a small cost that protects you from unlikely but potentially disastrous property issues.
What is title insurance?
Title insurance is a policy that provides coverage for risks that could impact the ownership of your home and your legal rights to it. It's a one-off payment, unlike the ongoing costs of, say, a home and contents insurance policy.
Let's say you bought a house but later discovered the boundaries of the property were misrepresented, meaning you own less land than you were led to believe. Or perhaps after settlement, you discover that the previous sellers had unpaid council rates. Title insurance could protect you in these situations.
While it's the job of your conveyancer to uncover most of these risks, there are other risks conveyancing can fail to uncover. Title insurance offers extra protection.
It also protects you from risks that arise in the future, like forgery and fraud, encroachments and unregistered easements on your property.
What does title insurance cover?
"When we think about health or car insurance, it's straightforward to imagine what kind of risks we're protecting ourselves against," says manager for insurance risk at First Title Claudia Argandona. "Title insurance protects against perhaps less obvious risks — like legal risks."
For a residential home buyer, title insurance covers risks like:
Title defects and planning errors
Boundary issues and encroachment from neighbouring properties
Illegal additions and building work (and the cost of rectifying them)
Outstanding council rates and water rates
Non-compliance with existing zoning and planning laws
Third-party claims on the land
Registration gaps
Fraud and forgery
Survey and boundary defects
If you're buying a property with a strata title, title insurance will cover risks such as:
Unapproved alterations
Outstanding council rates and water rates
Registration gaps
Fraud and forgery
Title defects and planning errors
Unmarketability due to existence of a covered title risk
For existing homeowners, title insurance will cover risks such as:
Illegal building work
Title defects and planning errors
Fraud and forgery
Survey and boundary defects
When is title insurance is a good idea?
Sometimes a buyer purchases a new home only to later discover a previous owner had carried out building works without council approval.
Common 'dodgy' works can include things like decks, carports, garages and even full extensions and granny flats. If your local council finds that these additions were added without proper planning approval, they might require you to repair or even demolish the unapproved building works, which can come at a substantial cost.
If you have title insurance, this can help could cover the costs of these rectification works.
Illegal building works
A recent title insurance claim saved one Victorian home buyer $160,000 in costs from the previous owner's illegal building works.
The new owner, according to First Title's Claudia Argandona, complained to their local council about a non-compliant gas connection. But the inspector uncovered multiple building works, including a verandah, shed and carport, all done without permits or council approval.
"Council issued a Building Notice to the client. They had to hire draftspersons, engineers, and other consultants to provide the plans and certification necessary to approve the building works."
"Not only did our client express understandable relief when they found out they were covered, but they were incredibly grateful to the conveyancer who handled their property purchase for advising them to purchase title insurance," Argandona says.
How much is title insurance?
Unlike many other insurance policies, title insurance is a one-off cost. You won't pay ongoing premiums.
There are only 2 title insurance companies in Australia: First Title and Stewart Title Limited. Insurance policy costs vary widely depending on which state or territory you are buying in, the type of property and the value of the property.
According to First Title's policy documents, a title insurance policy on the purchase of a residential home in New South Wales valued at $800,000 is $914.
Stewart Title quotes similar prices, starting from $960 when purchasing a property for $800,000 in NSW. Similar premiums apply in other states.
So, is title insurance worth it?
It's hard to work out which insurance policies are worth your money and which aren't. However, title insurance represents a minimal cost and can provide ongoing peace of mind in the unlikely but serious event of legal trouble with your new property. Consider your circumstances, talk to your conveyancer and decide if title insurance is right for you.
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Frequently asked questions about title insurance
Title insurance is a policy that provides coverage for risks that could impact the ownership of your home and your legal rights to it. While title insurance is common in the United States, it's still a relatively new product to the Australian market.
Chances are your lender will already have title insurance. Since they hold the title to your property as security, they'll want to protect their investment and their legal rights to the property in the event you default. But their policy doesn't cover you.
However, you can take out your own title insurance policy to cover yourself against risks that ownership issues could arise both before and after settlement. While conveyancing will uncover many of these potential risks, there are other risks it can fail to uncover.
Title insurance also protects you from risks that arise in the future. These can be risks such as forgery and fraud, encroachments and unregistered easements on your property.
Unlike many other insurance policies, title insurance is a one-off cost. You won't pay ongoing premiums.
There are only two title insurance companies in Australia: First Title and Stewart Title Limited. First Title quotes its policies from $225 for strata properties and from $300 for standard residential properties.
Stewart Title Limited quotes its premiums specific to the state or territory in which the property resides. For example, NSW residential title insurance premiums start at $330 while premiums for strata titles start at $247.50.
During the home buying process, you're likely to be pitched on a number of different insurance products. It's hard to sort through which are worth your time and which aren't. However, title insurance represents a minimal cost and can provide ongoing peace of mind. Consider your circumstances and decide if title insurance could be right for you.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification.
Removing a name from a property title can require the help of a legal expert, and might come with fees depending on the state. Find out how to do it here.
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