The Real Estate Regulation and Development Act 2016 (RERA) mandates the purchase of title insurance for all new and ongoing properties by developers registered with the regulatory body. In this regard, HDFC Ergo General Insurance Company recently launched a speciality insurance product aimed at protecting both developers and customers.

‘Title’ refers to a person who has legal ownership over a property or land and has the right to use it.

At the time of sale, the title of the property is transferred when the deed is signed in favour of the buyer.

But not all titles are clean, that is, a third-party can claim ownership over the same property, which could lead to long and expensive legal battles. Purchase of title insurance in such cases can reduce your financial burden (litigation costs, court settlement expenses).

Title insurance is basically a cover that provides protection to a property owner or a potential property owner against financial losses caused due to disputes in the title of the property.

Product features

HDFC Ergo’s title insurance, first of its kind in the private insurance industry, provides indemnity to property developers and subsequent owners of the property against losses and risks related to defects in property title arising out of third-party challenges.

Title insurance is initially bought by the developer/promoter and subsequently passed on to the buyers/allottee of the real-estate property, after the project completion.

HDFC Ergo’s title insurance is available to developers and buyers for a maximum of 12 years (minimum period is seven years). Usually, premium is a one-time payment.

The sum insured limit is based on the fully developed value of the property, that is, the aggregate sale value of the project.

When it comes to coverage, HDFC’s policy provides protection against 20 risks (that are not known prior to the commencement of the policy). These risks include fraud, forgery, recording errors in the documents, erroneous description of land, outstanding liens, invalidity of documents, and defective lease leading to defective title. The policy covers financial losses following any or all of these insured risks.

For a developer to purchase this policy, he/she has to submit title search report to the insurer along with the proposal form.

This report, which can be provided by the developer’s own lawyer, gives details on the land, issues (if any) related to the property and a list of previous owners.

Keep in mind

Like any other policy, HDFC Ergo’s title insurance also comes with a deductible (an amount to be paid by the policyholder to receive the claim).

At the time of claim, 1 per cent of the sum insured or 5 per cent of the claim payable, whichever is greater, will have to be paid from your pocket.

No claims will be processed at situations involving physical damage, environmental issues, tribal rights and known issues of the land/property that were not disclosed by the insured.

Also, claims arising from exercise of statutory rights by the government or State bodies or future changes in planning or property laws by the government will not be covered.

Any defects in the title charge encumbrances or issues affecting the property or any losses that are covered by a house insurance policy, will not be covered by the title insurance.

General exclusions such as war and allied perils, extended nuclear risks, wilful acts, terrorism or contamination of the property or part of the property will also not be covered under this policy.

Our take

Given that real estate still suffers from lack of proper land acquisition details and data on land records are often inaccurate or misplaced, any development of properties over these lands frequently sparks litigation over the ownership. HDFC Ergo’s title insurance can, to an extent, reduce your financial burden.

Though it covers only legal expenses and will not help correct or perfect the title of the property that is under litigation, it will be better to have a title insurance, as legal costs are high.

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