Most insurance covers something that might go wrong in the future. Title insurance is the exception: it covers things that already went wrong in the past and have not yet been discovered.
Ownership is a chain, not a fact
A property's ownership is established by a sequence of transfers stretching back through previous owners, and each of those transfers had to be valid for the current one to be valid.
A forged signature, an heir who was never notified, or a divorce settlement that was never properly recorded can leave a break in that chain decades before the present buyer appears.
Because the defect sits in the history rather than in the building, no survey or inspection of the property will reveal it, and the current seller may be entirely unaware of it.
The search finds most problems
Before a sale completes, someone examines the public record for the property: past deeds, mortgages, court judgments, unpaid taxes and rights that other people hold over the land.
That search resolves the great majority of issues before money changes hands, and many are cleared during the transaction by paying off a debt or obtaining a release.
What remains is the residue the record cannot show, including documents that were never filed, errors made by clerks, and claims by people who were entitled to be consulted but were not.
The premium is paid once
Because the risk being covered is historic rather than accumulating, the policy is bought at completion for a single payment rather than renewed annually like most cover.
The insurer's exposure does not grow with time in the way a health or motor risk does; it simply persists until a hidden defect either surfaces or never does.
The insurer also has an unusual incentive, since money spent examining records before issuing a policy directly reduces the claims it will later have to pay.
Two policies cover two parties
Lenders routinely require a policy protecting their security in the property, and that cover is written for the outstanding loan rather than for the value of the home.
A separate owner's policy protects the buyer's own equity, and buyers sometimes assume the lender's policy already does this when it does not.
Which policies are customary, who pays for them, and how much of the search is regulated all vary considerably by jurisdiction and change over time.
What the cover actually delivers
If a claim emerges, the insurer typically defends the title in court at its own cost, which is often more valuable than the payout because litigation is what makes such disputes ruinous.
Where the defect cannot be cleared, the policy compensates for the loss in value or, in the worst case, for the loss of the property itself.
The protection is therefore against a specific and rare failure of the record, not against a change of mind or a fall in the market.