What is necessary for a title insurance policy to be valid?

For a title insurance policy to be valid, it is crucial that there is an existence of insurable interest at the time a claim is made. This means that the policyholder must have a legitimate stake in the property covered by the insurance, which is typically the case when they own or are financially invested in that property. The insurable interest ensures that the policyholder stands to incur a financial loss if any issues arise concerning the title, such as liens or claims against it. Without this interest, the purpose of the insurance—protection against financial loss due to title defects—would not be applicable, making the policy essentially void.

In contrast, while full payment of the policy amount may influence the initiation of coverage, it alone does not establish the required validity of the policy; similarly, annual risk assessments and multiple policy purchases do not directly contribute to the validity of a specific title insurance policy. Therefore, establishing an insurable interest is the fundamental requirement to ensure that the policy serves its intended purpose of protecting the policyholder's investment in the property.