All You Should Know About the New Title Insurance Policy Introduced By the IRDAI

With the interest rate on home loan currently being at record low, many people are planning to buy their dream home. If you too are planning to buy a house property, you should also consider New Title Insurance to protect yourself from any financial loss that may arise due to ownership issues. The Real Estate (Regulation and Development) Act, 2016, makes the Title Insurance mandatory for every developer for all the projects in order to protect the retail buyers.

According to the Insurance Regulatory and Development Authority of India (IRDAI), "Title Insurance is a form of indemnity insurance that protects a potential owner of a property against financial loss arising from the events that occurred prior to the date of issuing the policy."

The IRDAI has asked all the general insurance companies, except standalone health insurance companies, to launch new Title Insurance products with added benefits for developers and individual buyers, keeping in view the minimum coverage specified in the latest circular.

Real estate is one of the prominent and fastest growing sectors in the country. The Title Insurance policies are already in the Indian market for past few years. And, the IRDAI has introduced another beneficial clause for the individual buyers. The new circular of IRDAI says, "considering the requirements of legal protection for promotors 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 promotors/ developers and retail property buyers."

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It further says, "In order to ensure that the general insurers offer basic Title Insurance covers for legal liabilities of promotors/developers in case of any loss caused to allottees due to defective title of the property, protection for individual buyers for the purchased units in projects and to facilitate easy marketability of these products, the Authority had constituted a Working Group to suggest, inter alia, product construct and policy wording for two new products in addition to the existing products."

As per the circular, the structure and coverage of the two types of Title Insurance policies are as mentioned below:

1. Promoter Legal Expenses (Defence Cost) Policy:

   This cover will indemnify the insured against legal defence costs only against suits challenging the title of the project.

2. Allottee/Individual Buyer Retail Policy:

   This cover is designed to indemnify the insured against the loss from a defect on the title of property. The policy may be opted by the individual buyer and financiers of the property at the time of taking the possession.

The main objective of the new Title Insurance is to provide coverage to the following:

1. Promoters or developers looking to opt for a minimum legal defence cost.

2. Allottees, individual buyers or financiers at the time of possession or handing over the property unit for protection against any legal suits in future.

Read on to know how the Title Insurance works:

'Title' is nothing but a legal ownership of the property. It is a specialised insurance policy that safeguards the legal owner and his/her property from any financial loss. Since all the titles are not 'clean', when you apply for a Title Insurance policy, before issuing the policy the insurance company verifies whether the title is clean or not. The Title Insurance policy is issued only after thorough verification and confirmation that there are no undisclosed heirs to the property, frauds, pending legal actions, unpaid taxes, etc. related to the title of the property. If someone challenges your title, the insurance company will be bound to compensate you in accordance to the loss.

Benefits of holding a Title Insurance Policy:

1. It meets the statutory compliance of the Real Estate (Regulation and Development) Act, 2016.

2. Having a Title Insurance Policy increases the value of the property when used as collateral, which makes it easier for the borrowers to obtain mortgage loans.

3. The Title Insurance Policy extends its coverage towards promoters/developers and individual buyers.

4. It provides financial protection for all the legal expenses, such as lawyer's fee, documentation, settlement costs, etc.

5. The Title Insurance Policy handles disputed ownership claims, which is essential as we do not have an organised system to track the property records and hence the number of fraud past property title charges and unclear land titles is high. Title Insurance can be one of the best solutions to handle any claim against title defect.

6. Since the general insurance companies offer legal assistance and help in claim settlement, you can save substantial amount of money and time.

7. Since the buyers consider it safer to buy a property that has Title Insurance, it ultimately increases the value of your property.

8. Title Insurance also covers the errors in public records and surveys.

Title Insurance had not been a common practice in India as the cost involved to offer this product is very high. Here are some of the challenges that general insurance companies face while offering a Title Insurance Policy:

1. The number of title related frauds are very high in India.

2. The Indian legal redressal system for the title disputes is quite slack.

3. The costs involved in conducting due diligence of the property before issuing the policy are very high.

4. The inspection process is very lengthy and time-consuming as the insurance company has to conduct searches at the appropriate land registries and visit the government offices for enquiries about the property records.

5. There are many loopholes in the laws that results in great uncertainty with respect to litigations that may arise on a property.

To Conclude:

The title changes each time you transfer the property to someone else. Therefore, it is possible that there are some gaps left during the transfer process and some flaws in the title. Title Insurance provides an aid to resolve ownership issues. It provides promoters or developers, allottees, individual buyers or financiers with compensation for title defects or defects resulting from these challenges. So, it is advisable to buy a Title Insurance Policy to protect yourself from all the title related issues, while it will also give confidence while buying/selling a property.

Warm Regards,
Ketki Jadhav
Content Writer

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