When buying a home, title insurance will certainly come up at some point. It's an important part of the home buying process, so it's equally important that you understand what it is and how it can protect you.

What's a Title?

A title is a written document that shows ownership of property. It includes the signatures of current owners and a legal description of the property. A title is also known as a deed.

Before you close on a new home, a title examiner will conduct a title search. This is a review of public records and legal documents to ensure that the seller is the true, legal owner of the property, and that there are no unsettled claims or liens against the property.

What is Title Insurance?

Title insurance protects the lender (and possibly the homeowner) against losses that might arise from property ownership disputes. The importance of title insurance can best be illustrated through an example:

Let's assume you're buying a house, and that the title search comes up clean. So you close on the house and move in. Two months later, a relative of the former owner shows up at your door, claiming that they were part owner of the property, and that they never surrendered or signed away their ownership.

This is an ownership dispute, and it could mean you'll have to go to court to defend your ownership of the property. If you have title insurance, it will likely cover your court costs.

Let's further assume that the former owner's relative was telling the truth. This means the title examiner overlooked a defect or "cloud" on the title. Somewhere along the line, ownership of the house was not properly transferred. It's not your fault, but you're still caught in the middle.

In the event that the court rules in favor of the former owner's relative, title insurance again comes into play. Title insurance will see to it that the lender is repaid for the mortgage loan, and that you are repaid for your investment in the property (up to the maximum amount allowable under the policy).

Your mortgage lender will require you to take out a title insurance policy in their name. This protects their financial interests, and it will most likely be mandatory. But the title insurance that protects you can be purchased separately, and in some cases you'll be able to choose whether or not to buy it.

If the lender requires that you take out a policy in both their name and yours, then you have no decision to make. But if your own coverage is optional under the lender's rules, you have to make a decision.

Personally, I think title insurance is a relatively inexpensive purchase, given the peace of mind and protection it affords. I'll always purchase title insurance when buying a house.

Lastly, keep in mind that title insurance only protects you against title errors that were made before you closed on the house. Title errors that take place after you close on the property will not be covered a title insurance policy.

Brandon Cornett is the editor of HomeBuyingInstitute.com, one of the Internet's largest and most respected libraries of home buying information - more than 100 expert articles in 12 different home buying categories! Put this knowledge to use by visiting http://www.HomeBuyingInstitute.com.