Just like health problems are insurable or accidents are insurable, title problems are also insurable. For the payment of a one-time premium, an insurance company will “insure” against financial loss which may result from a title problem in the future. This doesn’t keep a problem from occurring (any more than health insurance prevents an illness or liability insurance prevents an accident) but it provides monetary reimbursement should it occur. This monetary reimbursement, however, does not extend beyond the buyer’s purchase price for the property. For example, let’s assume a buyer purchases vacant land for $1,000 and obtains title insurance with respect to various title issues. The buyer then builds a house on the land so it is now worth $100,000. To the buyer’s dismay, someone raises an issue to his/her title to the property so he/she makes a claim against the title insurance policy. At most, the insurance company is obligated to the buyer for $1,000—the original cost to the buyer to purchase the property. For an additional cost, a “Market Value Rider” can be purchased which will increase the payment on a claim to account for appreciation in the value of the property. This does not, however, apply to any increase in the value as a result of improvements made to the property.
