What is a title insurance policy?

A title insurance policy serves as a contract that offers protection against defects in the title of a property. This means that it encompasses coverage for issues such as liens, encumbrances, or any other claims that could potentially impact ownership rights.

The primary purpose of title insurance is to ensure that the policyholder is safeguarded against financial losses arising from disputes regarding property ownership. When a title issue arises—such as an undiscovered heir claiming ownership or a mistake in the public records—the title insurance policy will cover the costs related to resolving these issues, thereby securing the buyer's ownership rights.

In contrast, the other options reflect different aspects of real estate transactions but do not capture the essence of what a title insurance policy actually provides. For example, while ownership confirmation documents are crucial in real estate, they do not offer the protective measures that title insurance does. Similarly, the guarantee of market value is not a function of title insurance, nor is it designed to fulfill legal requirements for closing. Thus, the correct characterization of a title insurance policy focuses primarily on its role as a protective contract against title defects.