Are there any statistics that support the need for Title Insurance?
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 http://en.wikipedia.org/wiki/Title_insurance#Industry_profitability 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: 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.
* Uses statistics to makes misleading claims not implied by the statistics.   * Insults others when they point this out, mocks the use of logic to show his reasoning doesn't follow, but doesn't refute that he used stats to make misleading claims.   * Ends up posting different statistics, implicitly acknowledging that the old statistics don't really support his claim, while continuing to insult those who rightfully corrected him. "Insurance rates are based on statistics manipulated by experts in actuarial ""science"". Actuaries look at how many times different makes and models get into accidents or are targeted by thieves, and how expensive it is to repair them. Many auto and finance sites will publish lists of the best and worst insurance risks. Family style cars like minivans and family sedans fair well, while sports cars get more expensive insurance. New models will get the risk of similar models until there is statistical data on them. One other take away from this discussion is that inexpensive insurance usually coincides with cheap repair costs, lowering your total cost of operation for your vehicle." "Sorry buddy, you don't get to say you're wrong when your models are consistently proven inaccurate. It is demonstrative of a fundamental flaw in methodology.   If you want to throw around statistical anylaysis it behooves you to verify and critique those models.   &gt;hey, look at all these facts, well researched figures, and data that gets someone to this conclusion  I didn't say that. I said oh hey look someone trying to stand on Nate Silver's shoulders, as if his methodologies and analysys weren't the laughing stock of the previous election.   The other ""statistics"" was one poorly done histogram from a loosely related study offered as evidence to support an opinion piece.   That's what you don't get. You're bought into a world with a substantial cognitive dissonance and then you try to swing science around as if it supports your beliefs when it doesn't.  &gt;From your understanding of the processes, to random sampling, to what stastical models represent, to facts in and of themselves.  Explain to me how the methodology for an exit poll is substantially different from the methodology for a prediction poll, other than the obvious ""everyone is a likely voter.""   That being said I think the numbers are representative of the voting trends ( the silver one, the other one is to small) from the exit polls because they don't get to play with the voter model, my critique is against the logical leap that one must be unintelligent or uninformed to have voted for Trump. There is no evidence for that. Only your ad hominem attacks.  The arguement is that those willing to manipulate their models to make a conclusion evident shouldn't be trusted to make reaching conclusions about the state of the electorate when they hold obvious bias." "This article has a section titled ""Do you need an umbrella policy to cover your personal liability risks?"" that says: If you have young children, for example, you might need a policy   because they have lots of friends. These little tikes might get into   some mischief and hurt themselves at your home. If so, you’re at risk   of being sued. Do you have people over often? Do you drive like a maniac or a   Parisian? Do you have firearms on your premises? Do you have gardeners   and housekeepers on the grounds? All these are reasons why you might   want to own an umbrella policy. Although many people in the US are homeowners, parents, drivers, etc., not everyone falls into these categories. For some people, as low as the premiums for such a policy might be,  the expected cost outweighs the expected benefit. The cost of a lawsuit may be extremely high, but someone may feel that the chance of a lawsuit being filed against them is low enough to be safely ignored and not worth insuring against. I'm probably not a great example, but I'll use my own situation anyway. Even though a liability policy probably wouldn't cost me too much, I'm almost certain that I wouldn't derive any benefit from it. I live alone without children (or firearms, pet tigers, gardeners, etc.) in a 520 sq. ft. apartment, so the probability that something bad would happen to someone on the small bit of property that I rent and that they would file a sizable lawsuit against me is small enough that I choose to ignore it." Mostly ditto Pete B's answer. There's little you can do about closing costs. Some closing costs are government fees. There's nothing you can do about this. Sad and unfair as it is, taxes are not optional and not generally negotiable. Title insurance and fire insurance are required by the lender. Even if you're paying cash, you don't really want to skip on these. If your house burns down and you have no insurance ... well, if you're worried about saving a few hundred on your closing costs, I assume that losing $200,000 because your house burned down and you have no insurance would be a pretty bad thing. Title insurance protects you against the possibility that the seller doesn't really legally own the property, maybe a scam, more likely a mistake or a technicality. You can, and certainly should, shop around for a better deal on insurance. Last couple of housing transactions I made, title insurance was a one-time fee of around $200. (I'm sure this depends on the cost of the house, where you live, maybe other factors.) Maybe by shopping around I could have saved $10 or $20, but I doubt there's someone out there charging $50 when everyone else is charging $200. Fire insurance you're probably paying a couple of thousand a year, more opportunity for savings. Typically the buyer and the seller each have a realtor and they split the fee. If you go without a realtor but the seller hires one, she'll keep the entire fee. So the only way to avoid this expense is if neither of you has a realtor. I've never done that. Realtors cost a ton of money but they provide a useful service: not only helping you find a house but also knowing how to deal with all the paperwork. Plenty of people do it, though. I presume they get the title agency or the bank or somebody to help with the paperwork. There are also discount realtors out there who don't show your home, do little or nothing to market it, basically just help you with the paperwork, and then charge a very low fee. Timing closing for a certain day of the month can reduce what you owe at closing time -- by reducing the amount of interest you pay on the first month's loan payment -- but it doesn't save you any money. You'll make it up over the course of the loan. You might possibly save some money by timing closing around when property taxes are due. Theoretically this shouldn't matter: the theory is that they pro-rate property taxes between buyer and seller so each pays the taxes for the time when they own the house. So again, you might need less cash at closing but you'll make it up the next time property taxes are due. But the formulas the banks use on this are often goofy. Maybe if you live some place with high property taxes this is worth investigating. You could skip the inspection. But inspections I've had done generally cost about $500. If they found something that was a major issue, they might save you from buying a house that would cost tens of thousands in repairs. Or less dramatically, you can use the inspection report for leverage with the seller to get repairs done at the seller's expense. I once had an inspector report problems with the roof and so I negotiated with the seller that they would pay for a percentage of roof repair. I suppose if you're buying a house that you know is run down and will require major work, an inspection might be superfluous. Or if you know enough about construction that you can do an inspection yourself. Otherwise, it's like not buying insurance: sure, you save a little up front, but you're taking a huge risk. So what can you control? (a) Shop around for fire insurance. Maybe save hundreds of dollars. (b) Find a seller who's not using a realtor and then you don't use a realtor either. Save big bucks, 6 to 7% in my area, but you then have to figure out how to do all the paperwork yourself and you severely limit your buying options as most sellers DO use a realtor. Besides that, there's not much you can do. On most of the consumer electronics it would not make much sense to get Insurance. Mostly these are not priced right [are typically priced higher]. IE there is no study to arrive at equivalent claim rates as in motor vehicle. Further on most of the items there is adequate manufacturing warranty to take care of initial defects. And on most it would make sense to buy a newer model as in todays world consumer electronics are not only getting cheaper by the day, but are also have more function & features. Whenever you put less than 20% down, you are usually required to pay private mortgage insurance (PMI) to protect the lender in case you default on your loan.  You pay this until you reach 20% equity in your home.  Check out an amortization calculator to see how long that would take you.  Most schedules have you paying more interest at the start of your loan and less principal.  PMI gets you nothing - no interest or principal paid - it's throwing money away in a very real sense (more in this answer).  Still, if you want to do it, make sure to add PMI to the cost per month. It is also possible to get two mortgages, one for your 20% down payment and one for the 80%, and avoid PMI.  Lenders are fairly cautious about doing that right now given the housing crash, but you may be able to find one who will let you do the two mortgages.  This will raise your monthly payment in its own way, of course. Also remember to factor in the costs of home ownership into your calculations.  Check the county or city website to figure out the property tax on that home, divide by twelve, and add that number to your payment.  Estimate your homeowners insurance (of course you get to drop renters insurance, so make sure to calculate that on the renting side of the costs) and divide the yearly cost by 12 and add that in.  Most importantly, add 1-2% of the value of the house yearly for maintenance and repair costs to your budget.  All those costs are going to eat away at your 3-400 a little bit.  So you've got to save about $70 a month towards repairs, etc. for the case of every 10-50 years when you need a new roof and so on. Many experts suggest having the maintenance money in savings on top of your emergency fund from day one of ownership in case your water heater suddenly dies or your roof starts leaking.  Make sure you've also estimated closing costs on this house, or that the seller will pay your costs.  Otherwise you loose part of that from your down payment or other savings. Once you add up all those numbers you can figure out if buying is a good proposition.  With the plan to stay put for five years, it sounds like it truly might be.  I'm not arguing against it, just laying out all the factors for you. The NYT Rent Versus Buy calculator lays out most of these items in terms of renting or buying, and might help you make that decision. EDIT: As Tim noted in the comments below, real monthly cost should take into account deductions from mortgage interest and property tax paid.  This calculator can help you figure that out.  This question will be one to watch for answers on how to calculate cost and return on home buying, with the answer by mbhunter being an important qualification If you're wealthy why do you think they wouldn't sue you for the money you owed?? And, as sunk818 says, credit scores can influence insurance costs.  While you could self-insure your home you generally can't self-insure when it comes to liability coverage on a car.