Which type of insurance protects the policy owner against financial loss due to defective title?

The correct answer is Title Insurance, which specifically protects property buyers and owners against financial loss resulting from defects in the title of a property. Title defects can include issues such as outstanding liens, encumbrances, or claims by other parties that could affect ownership. When a property is purchased, a thorough title search is usually conducted to identify any such issues, but some hidden defects may still arise after the transaction is complete. Title insurance provides peace of mind by covering the costs associated with resolving these issues, ensuring that the policyholder does not suffer financial loss owing to a problem with the title.

In contrast, Property Insurance typically covers the physical structure and content of a property against risks such as fire or theft but does not address title issues. Liability Insurance protects against claims of negligence or harm caused to others, which is unrelated to property title concerns. Homeowners Insurance generally bundles property and liability coverage for residential properties, but again, it does not focus on the specific risks associated with title defects. Thus, Title Insurance is the primary type of insurance that addresses financial losses due to defective titles.