Explained: All about what the new title insurance covers

#general insurance, #insurance, insurance policy, working group

Soon, you will be able to buy a title insurance policy from a general insurance company to protect yourself against faulty titles against your house. For instance, if legal disputes arise over your ownership rights to your property, this cover will insure you against the possible losses you might incur.

The Insurance Regulatory and Development Authority of India (IRDAI) defines title insurance as a cover that protects a potential owner of a property against financial loss from defects in the title of the real property. “The policy is a retrospective one where the insured is protected against losses arising from the events that occur prior to the date of issuing the policy,” IRDAI said in its circular outlining the guidelines for title insurance. So, even if you did buy a house earlier but took this policy now or later, the title insurance will cover that house for any losses that could occur from a bad title, from the time you had bought the house earlier.

“Title Insurance in India is at a nascent stage. IRDAI’s circular on the same will help increase its acceptance in the country. Individual buyers and financiers of the property can opt for it at the time of possession and they can be indemnified from a defect in the title of the property,” says TA Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance.

Title defects, legal expenses covered

The insurance regulator has allowed home-buyers as well as their lenders to take this policy, which comes with a tenure of 12 years, at the time of possession. The maximum sum assured will be up to the value of the purchase price you have paid to buy the property.

It will, among other things, reimburse any losses that the policyholder may incur due to defect on title of property. It will also insure you against any legal suits – including legal expenses – initiated by third-parties in future.

For developers, having such a cover in place is mandatory as per the Real Estate (Regulation and Development) Act 2016, though it has not seen great demand due to higher premiums and varied conditions. Home-buyers do not have access to such products. “There are a few title insurance products in the Indian market currently. However, considering the requirements of legal protection for promoters in the early stages of development of the project during financial appraisal, registration and approval with RERA authorities and safeguarding the interests of individual buyers after taking over the physical possession of property, there is a need to expand the current title insurance products suitable to promoters/ developers and retail property buyers,” IRDAI said, explaining the rationale behind the guidelines.

House built on encroached or disputed land

The insurance will not work if a dispute comes up on account of your house being built on encroached land. In simple words, the claims would not be payable if the discrepancies or encroachments are such that they could have been discovered through a survey of the land. Essentially, you cannot wash your hands off the responsibility of doing due diligence simply because you have purchased a title insurance cover.

Further, if the land, for which you have brought the insurance, turns out to have violated laws like environment pollution, then your insurance cover will not work. If you are aware of taxes or assessments made by the authorities, due at the time of buying the policy, the liability will not be covered.

Another exclusion pertains to the COVID-19 pandemic fallout – this is a blanket exclusion, that is, non-payable loss. As per the policy wordings, any loss or expenses arising out of COVID-19 will not be payable under the policy. “It is a blanket exclusion. “I do not see relevance for COVID-19 exclusion in this policy. However, of late, the trend is to mention it as an exclusion in corporate policies, so that could be the reason why this clause was inserted in the policy,” says a senior insurance executive who did not wish to be named.

Title insurance not mandatory for insurers

However, unlike the series of standardised term, health, COVID-19-specific, travel and home insurance policies, IRDAI’s circular wordings suggest that it is not mandatory for insurers to offer this cover. “Insurers are…encouraged to file these products as per the procedure required under the extant product filling guidelines. The insurers may also design and file similar products, keeping in view the minimum coverage as specified in the given policy wordings,” IRDAI has said. The policy wordings are based on a report submitted by the working group constituted to make recommendations on title insurance features.

Should you buy it?

IRDAI’s intention sounds promising, especially in a country like India where numerous title disputes are known to take place.

But wait for the insurance companies to roll out their products in line with the guidelines. Since it is not mandatory and they have been allowed to offer products with similar features, it makes sense to study each individual policy’s terms and conditions in detail first. “It is good that title insurance products will now be available. It will be a useful addition to your protection portfolio. However, keep a close eye on conditions that will need to be fulfilled for the claim to be valid and the premiums that insurers will announce,” says Harshvardhan Roongta, Financial Planner, Roongta Securities.

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