Number of claims per year / per region etc. Can't seem to find any. Publicly available through the web would be nice too :)
There seems to be no such information available. What is available is that number of claims are high and the Title Insurance companies have gone bankrupt as per the wikipedia article
In 2003, according to ALTA, the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums. By comparison, the boiler insurance industry, which like title insurance requires an emphasis on inspections and risk analysis, pays 25% of its premiums in claims. However, no reference to the relationship between when claims are made and when policies are issued is found. As of 2008, the top three remaining title insurers all lost money, while LandAmerica went bankrupt and sold its title business to Fidelity
The amount of premium received and claim made can be got from some of the companies balance sheet. For Fidelity its at http://www.investor.fnf.com/releasedetail.cfm?CompID=FNT&ReleaseID=363350
The article in here mentions the claims ratio as 5%. Refer http://www.federaltitle.com/blog/title-insuance-qaa
The point of title insurance is that when you buy a house, it is possible that you may eventually find out that the seller didn't actually own the property - either because they were trying to deceive you, or some transfer of ownership in the past wasn't carried out properly. If that happens you can find yourself with no house, and still owing the mortgager the purchase price. Hardly anybody can afford to take that kind of hit, which is why you need some form of protection against it.
The traditional way of doing this was to get a lawyer to do a title search, in which they check that everything in order. However this costs tens of dollars at least to do the work for every sale, and hardly ever finds anything.
Title Insurance is a company volunteering to take the hit for you if there turns out to be a problem, in return for a payment of less than the title search would cost. In essence they are saying that it's cheaper to take the risk than do the work.
What are the statistics? This report seems to indicate that payout is around 5% of premium, but title insurance is a one-off premium and the payout can theoretically happen many years down the line. However it is almost certain that the insurance companies have done the math and believe that selling this insurance will be profitable for them, so they believe that payouts are going to be substantially less than 100%.
Is title insurance worth it for you? If the payout is 5% of premiums, the in a purely statistical sense it is not worth it. You would on average gain more by not taking it. However that is true of almost all insurance. The policy is there to protect you in the unlikely but not impossible event where you would otherwise lose a huge amount of money. Unless you can afford to lose the value of your house, you need some form of protection. We've already seen that the only other form of protection is a title search, and they cost more.
The other issue is that if you are taking a mortgage, your mortgager will absolutely insist that you have either a title search or title insurance. There is no other way - and title insurance is the cheaper of the two. In this case it is best to look on the title insurance as simply a cost of doing business. It's irrelevant whether it's worth it or not - you can't do the transaction without it.
I'm really surprised at the answers here. Claims/year per region isn't a statistic that is meaningful here... you need to think about the risk factors and the purpose of the insurance.
First, what does title insurance do? It protects you against defects in the deed -- defects that may crop up and mean that your mortgage is no longer valid. This is different from most forms of insurance -- the events that render your title invalid are events that may have happened years, decades or even centuries ago. A big part of the insurance policy and its cost is conducting research to assess the validity of a deed. The whole point of the insurance is to reduce claims by improving data associated with the "chain of custody" of the property.
So how do you evaluate the risk of finding out about something that happened a long time ago, that nobody appears to know about? IMO, you have to think about risk factors that increase the probability that things were screwed up in the past:
- Is the property a standard city lot in a neighborhood that's been around for 100 years? (Low risk)
- How long has the property been a contiguous unit? (Longer == lower risk)
- Has the property been subdivided or added to? (High risk)
- Are there easements on the property that are close to new additions, outbuildings, etc? (High risk)
- Are there unusual rights associated with the deed? Things like lake rights, a easement/right-of-way for a neighbor's driveway, mineral rights, etc. (Medium-high risk)
- How does your jurisdiction handle title disputes? (Boston, MA and other places are different that most parts of the country)
You need to have an informed discussion with your attorney and figure out if it makes sense for you. Don't dismiss it out of hand.
When I bought the house I had my lawyer educate me about everything on the forms that seemed at all unclear, since this was my first time thru the process. On of the pieces of advice that he gave was that title insurance had almost no value in this state unless you had reason to believe the title might be defective but wanted to buy the property anyway.
In fact I did get it anyway, as an impulse purchase -- but I'm fully aware that it was a bad bet. Especially since I had the savings to be able to self-insure, which is always the better answer if you can afford to risk the worst case scenario.
Also: Ask the seller whether they bought title insurance. Often, it is transferrable at least once.
protected by Chris W. Rea Sep 2 at 10:40
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