What is the purpose of title insurance?

TITLE INSURANCE: Protects the insured against financial loss from DEFECTS in the title that EXISTED BEFORE the policy was issued (covers past events, unlike hazard insurance which covers future events). COVERED DEFECTS: Undiscovered liens; forgery in the chain of title; errors or omissions in public records; competing ownership claims/undisclosed heirs; encroachments; recording errors; fraud; TWO TYPES: OWNER'S POLICY (protects the buyer/owner up to the purchase price); LENDER'S (mortgagee) POLICY (protects the lender up to the loan amount — usually required by the lender); ONE-TIME PREMIUM: Paid once at closing (not ongoing like other insurance); TITLE SEARCH: Before issuing, the title company searches public records to find defects; the policy insures against undiscovered ones; MARKETABLE TITLE: Title free of serious defects that a reasonable buyer would accept; CHAIN OF TITLE: The history of ownership; CLOUD ON TITLE: A claim or defect affecting title; title insurance protects against pre-existing title defects and is standard in real estate transactions — important national exam knowledge distinguishing it from property/hazard insurance (which covers future physical damage).