What role does a title insurance policy play regarding encumbrances?

A title insurance policy primarily serves to protect the policyholder against potential financial losses that could result from undiscovered claims or encumbrances on real property. This insurance is crucial because, during the property buying process, there might be hidden problems related to the title that are not revealed until after the transaction has been completed. These issues could include liens, unpaid taxes, or other legal claims that may adversely affect ownership rights.

By providing coverage against these risks, title insurance reassures buyers and lenders that their financial investment in the property is secure. If any encumbrances are found that were not disclosed prior to the purchase, the title insurance policy will typically cover the costs associated with resolving these issues, thereby minimizing the financial impact on the policyholder.

In contrast, the other choices focus on aspects that are not the primary function of title insurance. For example, guaranteeing the sale of all properties refers to aspects of real estate transactions that are governed by contractual agreements, not insurance. Funding for property purchases relates to lending and financing arrangements rather than title insurance, and ensuring immediate transfer of ownership pertains to the legal process of title transfer rather than the protections offered by title insurance.