The Cost of Title Insurance
Do You Know How Title Insurance Premiums Are Calculated?
By: Brandon Livingston, president
Coast To Coast Title & Escrow Services, LLC
I have been asked this question frequently so I hope this may help all, or even one of you better understand. One fact, the higher percentage of claims an insurance company pays should not be equated with the value and cost of the policy. This is true with title insurance.
Most types of insurance cover a possible claim after the policy is purchased, for example car insurance. You may pay it monthly, or annually, and the policy holder is covered as long as the premium is being met each month or year.
Title insurance, on the other hand, is based on loss prevention, which means that a much larger percentage of the premium dollar is spent preventing title problems from occurring. These upfront costs cover searching, identifying and eliminating risks that could result in a future claim.
A typical title search involves searching the public records, including visits to the offices of recorders or registers of deeds if needed, even clerks of courts and other officials, and the company’s own title plant. Title professionals look for such things as second or third mortgages, judgments, liens, street and sewer system assessments, special taxes and levies, and numerous other matters. No other line of insurance does this level of due diligence before issuing a policy.
Over the long term, title insurers pay fewer claims than other insurers, but their operating expenses are much higher because of these upfront costs. To compare, operating expenses for property and casualty companies, which issue auto and homeowners insurance, is less than 30 percent of revenues. The expense ratio for title insurers averages 90 percent.
Another reason some mistakenly believe that title insurance costs are his is because they don’t fully understand its value. Title insurance protects the single largest financial investment most people make. One out of every four residential real estate transactions has an issue with the title, which is usually resolved by title professionals before the buyer closes.
When there is a claim, it is often due to a title defect that was undetected during the title search. The most common problems resulting in title claims are the result of fraud and forgery. And, when there is a loss, it is usually significant—sometimes in the hundreds of thousands of dollars.
An Owner’s Policy of Title Insurance, which can be obtained in addition to a Loan Policy, remains in effect for as long as the policyholder (or their heirs) owns the property that is insured. A claim could actually be filed 50 or 100 years after the policy was issued. And, an Owner’s Policy covers legal expenses involved in defending the title on behalf of the homeowner.
The cost for title insurance is a one-time fee, as opposed to other lines of insurance that charge a monthly, quarterly or annual premium over the life of the policy. When you consider the size of the asset being protected, title insurance is probably the best value among the majority of costs associated with closing on a new home.
All states are different, but in Florida the cost of an Owner’s Title Insurance Policy is based off of the Sales Price of the home being purchased, and is calculated like this:
HOW PREMIUMS (Title Insurance) IS CALCULATED:
$5.75 per $1,000.00 up to $100,000.00
$5.00 per $1,000.00 from $100,000.00 up to $1,000,000.00
$2.50 per $1,000.00 from over 1,000,000.00 up to $5,000,000.00
$2.00 per $1,000.00 over $10,000,000.00
Example, let’s use an easy sales price of $150,000.00
100 x 5.75 = $575.00 for the first $100,000.00
50 x 5.00 = $250.00 for the remaining $50,000.00
Total = $825.00 Owner’s Title Insurance Premium
If we are provided with a prior Owner’s Policy, you may be eligible for a reissue rate, also known as a reissue credit.
REISSUE RATES (AKA: REISSUE CREDIT) HOW IT’S CALCULATED
$3.30 per $1,000.00 up to $100,000.00
$3.00 per $1,000.00 up to $1,000,000.00
Generally, the lending institution on a purchase transaction will require a Lender’s Title Insurance Policy even though an Owner’s Policy is being purchased, this is referred to as a Simultaneous Issue Rate, a $25.00 fee up to the first $100,000.00
There are easy to use calculators and we even have a free mobile/desktop app that you can simply download from our website and type in the sales price and the title insurance premium will automatically calculate.
Thank you for reading and I hope that this helps you have a better understanding of how title insurance is calculated. If you have any questions, or need more information please feel free to contact me anytime. www.ctctitle.com