When rights to real property are transferred, insurance is generally purchased to cover potential losses which could result from unforeseen defects in the title. For instance, a lien on the property that went undiscovered during the purchase transaction could pop up, years later, and result in losses for either the homeowner or the bank that financed the transaction. In the event of such a loss, the title insurer would cover the expenses in accordance with the terms of the policy.
Generally, lenders and owners carry separate policies. The Lender’s Policy insures the lender for the amount of the loan. The Owner’s Policy insures the purchaser for the purchase price.