A loan policy insures the mortgage lender rather than the borrower, for the amount of the loan, against defects in the title that would attack the validity, enforceability or priority of its lien, and it ends when that loan is paid off.
The lender's policy, formally the loan policy of title insurance, is the line on the loan estimate that most buyers read as protection for themselves. It is not. It insures one party, the lender, over one thing, the mortgage or deed of trust the lender is about to record, and it stops when that loan stops.
It is also the only title insurance anybody is required to buy, and the requirement comes from the loan rather than from any law. Every mortgage lender wants it, which is why the question of whether to have one never really arises.
Who is insured, and over what
The insured is the lender named in Schedule A and, by the policy's own definitions, whoever ends up holding the loan: the servicer's principal, the investor who buys it in the secondary market, a successor by merger. This matters because a home loan is usually sold within weeks of closing, and the coverage has to follow the note.
The covered risks are the same catalogue of past defects as an owner's policy, read from the lender's point of view. Title vested in somebody other than the borrower. A forged or improperly executed deed earlier in the chain. An unreleased mortgage or a construction lien with an earlier priority date. No legal access to the land. And the ones peculiar to a loan policy: that the deed of trust is a valid and enforceable lien on the title, and that it has the priority Schedule A says it has.
Priority is the part that earns the premium. A lender lending against a first position is buying the assurance that nothing recorded ahead of it will turn out to outrank it, because a second-position claim on a defaulted loan is worth what is left after the first is paid, which is often nothing.
The amount, and the way it shrinks
The amount of insurance is the original loan amount, not the price of the house. As the balance is paid down the insurer's maximum exposure follows it, because a loan policy is written to indemnify against loss on the debt and the debt is smaller each year. Nothing about that helps the borrower's equity, which grows over the same period and is insured by nobody unless an owner's policy was bought.
The other side of it: the borrower pays the premium. On a purchase it appears in the title services block of the loan estimate and again on the closing disclosure. On a refinance the borrower pays for a new one, because the new deed of trust is a new lien with a new priority date and the old policy insured the old one.
What it costs when an owner's policy is bought too
Both policies come off the same search and the same commitment, so the second one is not a second piece of work. Filed rate schedules price it accordingly: where an owner's policy is being issued on the same property at the same time, the loan policy is added at a simultaneous-issue charge rather than at its own full rate. Nevada's definition of a single risk at NRS 692A.050 recognises the arrangement, treating two policies simultaneously issued on different estates in identical real property as one risk.
Endorsements are the rest of the lender's bill. A lender typically requires several, each a small charge, covering matters like an environmental protection lien, the survey, a variable rate, a condominium or planned unit development, and each one is a named amendment to the policy rather than a general widening of it.
When it ends
A loan policy ends when the loan does. Pay the mortgage off, sell the house, or refinance, and the policy that insured that lien has nothing left to insure. There is no residual coverage for the former borrower, because they were never an insured under it.
That is the whole argument for the owner's policy, and Nevada legislates the moment it arises. Under NRS 692A.210, where a loan policy is being issued on a purchase and no owner's policy has been ordered, the title insurer or agent has to notify the buyer in writing, before disbursement, that the policy does not protect them and that they may buy their own, and take a signed waiver if they decline.
Questions people ask
Does lender's title insurance protect the borrower at all?
Only indirectly. If a covered claim succeeds, the insurer makes the lender whole on the loan balance, which stops the lender pursuing the borrower for the debt on a property they have lost. The borrower's down payment, principal paid and any appreciation are not insured by it.
Do you have to buy a new lender's policy when you refinance?
Yes, because the new loan is a new lien and needs its own policy with its own priority date. The owner's policy from the purchase carries on untouched and is not reissued. Many insurers apply a reissue or refinance rate where a recent prior policy on the property can be produced.
Can you shop for the lender's title policy?
The borrower generally chooses the title company, subject to the lender's approval, and the lender must list providers it will accept. Because rates are filed with the state and the simultaneous-issue discount only applies when one company writes both policies, splitting them between two companies usually costs more and buys nothing.