West Virginia Mortgage Law Practice Test 2025 - Free Mortgage Law Practice Questions and Study Guide

Title insurance is specifically designed to protect both lenders and homebuyers from potential financial loss that may arise from defects in the title to a property. A clear title is essential for a smooth real estate transaction, as any issues—such as liens, encumbrances, or undisclosed heirs—can jeopardize ownership and lead to legal disputes.

When a title insurance policy is issued, it typically covers both the buyer and the lender. For the buyer, the policy provides peace of mind that their ownership of the property is secure and free from unknown claims. For lenders, the title insurance ensures their investment is protected until the mortgage is paid in full.

This type of insurance is distinct from other types of policies that address various risks associated with property ownership, such as natural disasters or personal property coverage. These other forms of insurance do not provide the same protections regarding title issues and ownership rights. Hence, option B accurately captures the critical function of title insurance in the context of real estate transactions.