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Title insurance is a type of indemnity insurance that protects a home buyer or property owner from financial loss caused by title Issues. The policy is retroactive, which means that the insured is protected against losses resulting from events that occurred prior to the date the policy was issued. 

Section 16 of the Real Estate (Regulation and Development) Act, 2016 provides that-  "Obligations of promoter regarding insurance of real estate project.—

(1) The promoter shall obtain all such insurances as may be notified by the appropriate Government, including but not limited to insurance in respect of 

(i) title of the land and building as a part of the real estate project; and

(ii) construction of the real estate project.

(2) The promoter shall be liable to pay the premium and charges in respect of the insurance specified in sub-section (1) and shall pay the same before transferring the insurance to the association of the allottees.

(3) The insurance as specified under sub-section (1) shall stand transferred to the benefit of the allottee or the association of allottees, as the case may be, at the time of promoter entering into an agreement for sale with the allottee.

(4) On formation of the association of the allottees, all documents relating to the insurance specified under sub-section (1) shall be handed over to the association of the allottees."

According to Section 2(g) of the Act “Appropriate Government means in respect of matters relating to,—

(i) the Union territory without Legislature, the Central Government;

(ii) the Union territory of Puducherry, the Union territory Government;

(iii) the Union territory of Delhi, the Central Ministry of Urban Development;

(iv) the State, the State Government;"

The Insurance Regulatory and Development Authority of India (IRDAI) introduced Title Insurance Products to protect property owners from financial loss due to title related issues. The IRDAI in its latest circular, stated that "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 the property, the regulator needs to expand the current title insurance products suitable to promoters/developers and retail property buyers." Accordingly IRDAI has instructed general insurance companies to offer following types of title insurance -

"(a) 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.

(b) Allottee/Individual Buyer Retail Policy: This cover is designed to indemnify the insured against loss from a defect on title of property. The policy may be opted by the individual buyer and financiers of the property at the time of the possession."

The primary goal of Title Insurance products are to provide coverage to-

(a) Promoters/developers, preferring to opt for a minimum legal defence cost; 

(b) The end users i.e, individual buyers, financiers, and allottees of the property unit from any potential legal issues in the future.

Benefits of Title Insurance:

Title insurance is a valuable tool for protecting real estate investments. It helps mitigate the risk of financial loss that can arise from issues with the title of the property. Some of the key benefits of having title insurance include:

Ø  It helps ensure that proper due diligence is conducted on the property.

Ø  It can reduce the overall risk of real estate transactions.

Ø  It provides additional protection beyond the representations and indemnities given by the seller in the documents.

Ø  It covers any issues with the title that may arise from defects in the title documents.

Ø  It also covers the litigation related costs.

Issues with the Title Insurance Products-

Expensive product

Title insurance is costly and the premium is based on the total value of the property, including the cost of the land, construction, and the developer's profit margin. This can lead to a premium that ranges from 0.5% to 3%. Developers of under construction properties cannot pass on the this cost to their customers. Additionally, there is a lack of reliable data on property ownership and valuation, which further complicates the process.

Notable Exclusions

Title insurance protects against past issues with the property title, but not future ones. This can be a major concern for homeowners and developers, as illegal land grabs and professional encroachers are a common problem in many areas. This lack of coverage is especially troubling given the high cost of the insurance. Additionally, title insurance does not cover issues that may arise from discrepancies in government approvals, those can lead to delays or even the failure of major projects. That's why many people find the title insurance unappealing.

References:

https://ksandk.com/real-estate/title-insurance-in-india-shortcomings/

https://blog.ipleaders.in/whether-getting-title-insurance-beneficial-homebuyers/

https://www.mondaq.com/india/insurance-laws-and-products/1177790/title-insurance-and-challenges-in-the-indian-market

https://www.zeebiz.com/india/news-property-title-insurance-for-homebuyers-in-disputed-ownership-claims-both-rera-and-non-rera-113749