What is title insurance and who does it protect?

• A. Insurance protecting lenders and buyers from title defects or undiscovered liens, ensuring marketable title.
• B. Insurance protecting against fire damage.
• C. Insurance for property value depreciation.
• D. Insurance for natural disasters.

Answer: (A)

The key idea is that title insurance protects the ownership rights in a property, not the physical building. It covers risks to the title itself—issues that could undermine who truly owns the property or the lender’s security interest—even if those problems aren’t found in a standard title search. This includes title defects, hidden liens, forged documents, errors in public records, or undisclosed claims against ownership. Because some of these problems can surface after closing, title insurance provides protection for both sides: a lender’s policy to protect the mortgage lender’s interest and an optional owner’s policy to protect the buyer’s equity.

That’s why the described option is correct: it specifies protection for lenders and buyers against title defects or undiscovered liens and ensures the title is marketable. It’s not about fire damage, property value depreciation, or natural disasters—that’s covered by other types of insurance such as homeowners or hazard insurance, not title insurance.