What is the purpose of a title insurance policy?

A title insurance policy serves a crucial role in real estate transactions by protecting the buyer and lender from potential financial loss that may arise due to defects in the title of the property. This coverage is essential because it safeguards against various issues that might not have been discovered during the title search, such as undisclosed heirs, fraudulent claims, liens, or other claims against the property that can significantly affect ownership rights.

When a title insurance policy is in place, it provides peace of mind by ensuring that any legal complications or challenges relating to the property title are handled by the insurer, thus minimizing the financial impact on the insured party. This protection is especially important given that title issues may only surface after the transaction has been completed, potentially leading to expensive legal disputes or the loss of ownership altogether.

In contrast, while ensuring the property is free from defects before purchase is relevant in the general context of buying real estate, it's not the primary function of title insurance. Similarly, covering repair costs or guaranteeing the agreed-upon price relates to other aspects of property transactions but does not pertain to the objectives of title insurance, which focuses specifically on title-related risks and losses.