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What Goes Into Calculating A Title Insurance Rate?

For many people, title insurance is a strong contender for the honor of “most confusing line item on a list of closing costs.” Unlike homeowner’s insurance, title insurance doesn’t protect against fire, flood, or other damage that might occur while you own your home. Title insurance is unique — on the date that you buy the policy, everything it might cover has already happened

And yet, title insurance is an essential protection for a homeowner. Title insurance protects against clouds or defects of title that are not reflected in even a thorough title search, and can keep you from experiencing every home buyer’s worst nightmare — shelling out big bucks due to a valid but unknown claim against the title to your new home that jeopardizes everything you have worked so hard to build.

With that said, there are still lots of questions — including how much title insurance might cost, and how your policy will be calculated. Let’s break down these important FAQs:

How Much Will Title Insurance Cost?

There are two types of title insurance policies: lender’s title insurance, which protects the mortgage lender in the event it becomes clear that the borrower does not hold clear title to the property, and owner’s title insurance, which protects you as a homeowner in the event of a prior claim against title that only comes to light after the property’s transfer.

In Illinois and Wisconsin, the seller of the property typically pays for the owner’s title insurance policy, and the buyer pays for the lender’s policy. 

From the purchaser’s perspective, the largest factor impacting title insurance rates is, perhaps unsurprisingly, the cost of the home or the size of the loan being insured. Most title insurance companies use either a “rate per thousand” system (that is, the cost of insuring every thousand dollars), or a tiered system in which a fixed rate is charged, based on which tier the sale price of the home falls into based on price point.

The lender’s title insurance rate is typically about half (sometimes less) than the rate for owner’s title insurance, but this is not always the case. Insurance rates can be subject to adjustment upward or downward for a number of reasons. Many title insurance companies offer discounts if both the owner’s policy and lender’s policy are purchased from the same insurer. Conversely, insurers might charge more for a policy that poses extra risk, for additional endorsements, or for an unusually complex title transaction. 

How Are Title Insurance Rates Set?

Title insurance rates can vary widely from state to state. In some states, including Texas and Florida, the rates are fixed by the state’s governing body, removing much of the insurer’s discretion to set rates. In Iowa, the state underwrites the insurance itself, resulting in dramatically lower premiums than anywhere else in the nation.

Title Insurance Rates In Illinois

In Illinois, title insurance is governed by the Illinois Department of Financial and Professional Regulation (IDFPR), though title insurers have the broad freedom to set their own rates. The actual cost of title insurance in Illinois depends on the value of the property, the insurer from whom you buy your coverage, and the location where the home is located. 

Rates can also vary depending on the extent of the coverage. Insurance endorsements expand the coverage of a typical owner’s title insurance policy by removing exceptions to the standard policy or by adding coverage specific to the property’s situation. Endorsements can cover a variety of situations, including encroachments, where a structure on the property may encroach on a neighbor’s property and there is a risk it will need to be moved at a later date, or mechanics liens, where a contractor for the property may have a claim that has not yet matured at the time the property’s title is transferred. Depending on your property’s particular history, endorsements may be required to close on the sale. 

Because title insurers can compete on rates, it’s generally advisable to seek rate quotes from multiple insurers to make sure you’re getting the best possible rate. 

Title Insurance Rates In Wisconsin

Wisconsin title insurance rates are regulated by the Office of the Commissioner of Insurance (OCI). Wisconsin is a file-and-use state for title insurance rates. This means insurers are required to submit a rate filing to OCI within 30 days of beginning to use new rates. Wisconsin insurers are permitted to deviate from the filed rates and offer discounts or lower rates based on the facts and circumstances surrounding a particular transaction. However, Wisconsin title insurance providers must document these “downward deviations” to avoid any indication that insurance rates are being set in a discriminatory fashion. As in Illinois, endorsements may be needed, depending on the particular history and circumstances of the property.

Like in Illinois, title insurers in Wisconsin are permitted to compete on price, so taking time to seek quotes and understand what your coverage does and does not include is an important step in the transaction process.

What Happens to Your Policy When Refinancing?

Generally speaking, if you refinance your home, your new lender will require you to purchase a new lender’s title insurance policy. The lender’s policy only provides coverage for the life of a loan. When a home is refinanced, one loan ends and another begins – and another title insurance policy must be purchased (though you may be able to secure a policy at a significant discount). 

The same rule does not apply to the owner’s policy – an owner’s policy provides coverage generally for as long as you or your heirs hold an interest in the property, so there is no need to purchase a new owner’s policy when refinancing.

Landtrust Title Is Your Trusted Title Insurance Provider

Protecting your interests with title insurance is one of the most important pieces of any real estate transaction — and you don’t have to navigate the ins and outs of owner’s and lender’s title insurance policies alone. The cost of title insurance is only one consideration in choosing a title insurance partner. Because title insurance protects your interest for as long as you own your home, partnering with a safe, established provider is essential. Landtrust Title is a trusted, proven partner at every step of the closing process. 

Interested in learning more about closing costs? Use our instant quote calculator to get an estimate today.

If you have questions about what title insurance can do to protect you, what it involves, or how to get it, Landtrust Title Services can help. Please contact us today at [email protected] or by phone at 312.528.9210 to get answers to all of your questions.

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