The coverage amount of a title insurance policy is generally based on what factor?

The coverage amount of a title insurance policy is primarily determined by the loan amount. This is because title insurance is designed to protect the lender (and, in some cases, the buyer) against potential issues related to the title of the property. For lenders, the policy typically needs to cover the amount of the loan they are extending, ensuring that their financial interest in the property is protected.

When a buyer takes out a mortgage to purchase a property, the title insurance policy generally matches the loan amount because this reflects the lender's risk. If there were a title defect or legal issue that arose after the purchase, the title insurance would cover the lender's potential financial loss, up to the amount of the loan.

While the appraised value of the property and the original purchase price can influence a buyer’s decisions and the overall context of a real estate transaction, they do not directly dictate the coverage amount for title insurance, which is fundamentally about safeguarding the financial asset that the lender is backing. The owner's net worth is also irrelevant in determining the coverage amount, as title insurance concerns itself with the specific property and the financial transaction associated with it rather than the personal financial status of the buyer.