Title Insurance in Texas: The Real Estate Exam Guide

Title insurance is one of the most Texas-specific topics in the Ownership, Transfer, and Title area, because Texas regulates it more tightly than almost any other state. Learn the two policies and the promulgated-rate rule, and these questions become quick points.

What is title insurance, and why does the exam care?

Snippet answer: Title insurance is a policy that protects an owner or lender against financial loss from defects in the title that already existed before the policy was issued but were hidden or unknown. Unlike hazard insurance, which covers future events like a fire, title insurance looks backward and covers past problems in the chain of ownership.

Most insurance protects you against something that might happen later. Title insurance is the opposite. It protects you against something that already happened but nobody found: a forged signature in an old deed, an error in a past conveyance, a missing heir with a claim, or an unpaid lien that never got released.

The Texas Department of Insurance describes an owner's policy as protection against ownership problems that arose before you bought the property but were not known at the time. It lasts as long as you or your heirs own the land. If a covered claim surfaces, the title company defends you and pays covered losses.

This connects directly to two other exam topics. A clean transfer depends on a valid deed, and priority depends on recording. Title insurance is the safety net for the defects those systems miss.

Owner's policy vs loan policy: who does each protect?

Snippet answer: The Owner's Policy (T-1) protects the buyer up to the policy amount, usually the sales price, and lasts as long as the owner or heirs hold title. The Loan Policy (T-2) protects the lender for the loan amount and is required by the lender. The owner's policy does not protect the lender, and the loan policy does not protect the owner's equity.

This is the distinction the exam tests most. Keep the two policies in separate boxes.

Two traps live in that table. First, a buyer who takes a loan and buys only the loan policy has protected the lender, not their own equity, so a buyer wants the owner's policy too. Second, when both policies are bought together at closing, Texas issues the loan policy at a discounted $100. If the buyer skips the owner's policy, the loan policy costs full price.

Why does every Texas title company charge the same rate?

Snippet answer: Because Texas is a promulgated-rate state. Texas Insurance Code Section 2703.151 requires the state to fix and promulgate the premium rates that all title insurance companies and agents must charge. Every licensed title company charges the identical premium for the same coverage amount, so you cannot shop for a cheaper title premium in Texas.

This is the single most Texas-specific fact on the topic, and national study guides often get it wrong. In many states, title companies compete on price. In Texas, the Texas Department of Insurance sets the premium, and the same coverage amount costs the same at every title company in the state.

What does that mean for a buyer or agent? You do not shop title companies on premium, because the premium is fixed by rule. You choose a title company on service, reputation, and closing experience instead. The premium still rises with the policy amount, using the state rate schedule, so a higher sales price means a higher one-time premium. But two companies quoting the same coverage must quote the same number.

Texas also sets the forms: T-1, T-2, and the commitment

Snippet answer: The Texas Department of Insurance promulgates not just the rates but the forms. Every title company uses the same state-adopted policies and endorsements, including the T-1 Owner's Policy, the T-2 Loan Policy, and the T-7 Commitment for Title Insurance. Agents do not write their own title policy language in Texas.

The Basic Manual of Title Insurance published by the Texas Department of Insurance adopts all the title insurance forms used in the state and sets the rules for using them. Because both the rates and the forms are standardized, a T-1 owner's policy reads the same whether it is issued in Houston or in El Paso.

The commitment matters to agents. Before closing, the title company issues a Commitment for Title Insurance (form T-7). It previews the policy in three schedules. Schedule A shows what will be insured. Schedule B lists the exceptions the policy will not cover. Schedule C lists the requirements that must be cleared before the policy issues, such as paying off an existing lien or curing a defect. A buyer or agent reviews the commitment during the title review period, which is why reading it carefully is part of protecting the client. The promulgated contract forms that trigger this process are covered in the TREC promulgated forms guide.

What a title policy covers, and what it excludes

Snippet answer: A Texas title policy lists what it insures in Schedule A and what it does not cover in Schedule B. Schedule A shows the insured party, the policy amount, and the property. Schedule B lists the exceptions, such as recorded restrictions, easements, taxes not yet due, and matters a survey would reveal.

Every Texas policy has the same two-part structure, and the exam can ask what belongs in each.

• Schedule A is what is insured: the name of the insured, the dollar amount of coverage, the estate or interest, and the legal description of the property.
• Schedule B is what is excepted: items the policy will not cover, such as recorded restrictive covenants, existing easements, property taxes and standby fees not yet due, liens the buyer agrees to accept, and defects a current survey would show.

Common covered problems include forgery in the chain of title and a deed signed by someone without capacity. Others are an undisclosed or missing heir, an error in a prior recorded document, and an unreleased lien. Uncovered items are the things listed as exceptions in Schedule B. That is why buyers often pay for a survey and endorsements to narrow those exceptions.

Who pays for the owner's policy in Texas?

Snippet answer: It is negotiable and set in the contract. In the TREC One to Four Family Residential Contract, Paragraph 6A names the title company and states whether the buyer or the seller pays for the Owner's Policy. In many Texas markets the seller customarily pays, but this varies by region and must be specified in the contract.

There is no statewide rule forcing one party to pay. What controls is the contract. Paragraph 6A of the standard TREC resale contract names the title company that will issue the owner's policy and identifies who pays for it. Market custom fills the blank in many deals. Sellers often pay in some regions and buyers pay in others, but the parties can still negotiate it either way.

For agents, the takeaway is simple: never assume, always confirm what Paragraph 6A says. The line-by-line walkthrough is in the one to four family contract guide.

Title search vs title insurance: two different jobs

Snippet answer: A title search examines the public records to build the chain of title and find known problems. Title insurance is the financial protection that pays if a hidden defect surfaces despite the search. The search finds what is on record; the insurance covers what the search could not catch.

Before issuing a policy, the title company searches the county records, traces the chain of ownership, and lists what it finds in the commitment. That search catches recorded problems. But some defects are not on record at all, like a forged signature, a missing heir, or fraud. Title insurance is what protects the owner or lender if one of those hidden defects appears later. Recorded liens, such as a mechanic's lien, usually show up in the search, while off-record problems are exactly what the policy is for.

Original practice questions

Use these to check yourself. They are written for practice and are not copied from any real exam.

Question 1. A Texas buyer gets a mortgage and, at closing, buys only a loan policy of title insurance. A year later a hidden defect in the title causes the buyer to lose equity. Who is protected by that loan policy?

• A) The buyer, up to the sales price
• B) The lender, for the loan amount
• C) Both the buyer and the lender
• D) The seller

Answer: B. A loan policy protects the lender for the loan amount. It does not protect the buyer's equity. To protect their own interest, the buyer needed an owner's policy. (Original question.)

Question 2. A buyer calls three Texas title companies to compare the premium for the same owner's policy coverage amount. What will the buyer find?

• A) The premiums vary widely, so shopping saves money
• B) The premiums are identical, because the state sets the rate
• C) The cheapest company wins the business on price
• D) Premiums are negotiable with each company

Answer: B. Texas is a promulgated-rate state under Insurance Code Section 2703.151. Every title company charges the same premium for the same coverage, so buyers choose on service, not price. (Original question.)

Question 3. Which title insurance document does a title company issue before closing to tell the buyer what the final policy will cover and what it requires?

• A) The Schedule B exceptions page
• B) The T-2 Loan Policy
• C) The Commitment for Title Insurance
• D) The warranty deed

Answer: C. The Commitment for Title Insurance (form T-7) is issued before closing. It previews the coverage, the requirements, and the exceptions, and the buyer reviews it during the title review period. (Original question.)

Question 4. Where on a Texas title policy would you find the recorded easements and property taxes not yet due that the policy will not cover?

• A) Schedule A
• B) Schedule B
• C) The T-1 form number
• D) The deed of trust

Answer: B. Schedule B lists the exceptions and items the policy does not cover. Schedule A lists what is insured: the insured party, the amount, and the property. (Original question.)

Common exam traps to remember

Snippet answer: The title insurance questions punish four confusions: swapping the owner's and loan policies, thinking you can shop for a cheaper Texas premium, treating title insurance like future-event coverage, and forgetting it is a one-time premium.

• Owner's policy protects the owner; loan policy protects the lender. Do not swap them.
• You cannot shop Texas title premiums. The state sets the rate, so every company charges the same for the same coverage.
• Title insurance looks backward. It covers defects that existed before the policy date, not future events.
• It is a one-time premium. Paid once at closing, not annually.
• The forms are standardized too. T-1, T-2, and T-7 are state-adopted, not company drafted.

You can drill these against timed Texas questions in the free practice test, and look up any unfamiliar term in the Texas real estate glossary.

Frequently Asked Questions

For quick answers to every common Texas exam question, see the Texas real estate exam FAQ.

What is the difference between an owner's policy and a loan policy in Texas?

The owner's policy (T-1) protects the buyer up to the policy amount and lasts as long as the owner or heirs hold title. The loan policy (T-2) protects the lender for the loan amount and ends when the loan is paid off. A buyer who wants protection for their own equity needs an owner's policy, because the loan policy only covers the lender.

Why is title insurance the same price at every Texas company?

Because Texas is a promulgated-rate state. Texas Insurance Code Section 2703.151 requires the state to set the premium rates that all title companies must charge. The same coverage amount costs the same at every licensed title company, so you compare companies on service rather than price.

Is title insurance a one-time cost or an annual premium?

It is a one-time premium paid at closing. The owner's policy then protects you for as long as you or your heirs own the property, with no renewal payments.

Does title insurance cover future problems with my property?

No. Title insurance covers defects in the title that existed before the policy date but were not known, such as forgery, prior deed errors, undisclosed heirs, or unreleased liens. It does not cover future events, which is the job of a separate hazard or homeowners policy.

Who pays for the owner's title policy in a Texas home sale?

It is negotiable and stated in Paragraph 6A of the TREC contract. In many Texas markets the seller customarily pays, but it varies by region and the contract controls, so it must be filled in and agreed by the parties.

What is the difference between Schedule A and Schedule B?

Schedule A shows what is insured: the insured party, the coverage amount, and the property. Schedule B lists the exceptions and exclusions, meaning the recorded restrictions, easements, taxes not yet due, and survey matters the policy will not cover.

Sources and Methodology

This article was reviewed against the Texas Insurance Code and Texas Department of Insurance materials on July 21, 2026. The requirement that the state set premium rates comes from Texas Insurance Code Section 2703.151, which directs the commissioner to fix and promulgate the premium rates charged by title insurance companies and agents. That is what makes Texas a promulgated-rate state, where every company charges the same premium for the same coverage. The owner's policy details come from the Texas Department of Insurance consumer information on owner's and loan policies. That source states the owner's policy protects against ownership problems that arose before purchase but were not known, that it lasts as long as you or your heirs own the land, and that the loan policy is issued at $100 when purchased at the same time as an owner's policy. The adoption of standardized forms, including the owner's policy, loan policy, and commitment, comes from the Texas Department of Insurance Basic Manual of Title Insurance, which adopts the forms used in the state and sets the rate rules. The rule that the parties agree who pays for the owner's policy comes from Paragraph 6A of the TREC One to Four Family Residential Contract. These rules can change, so verify the current Texas Insurance Code, the Basic Manual, and the current TREC contract before relying on any point in practice.

Official Source Links

• Texas Department of Insurance: Owner's Policy
• Texas Department of Insurance: Loan Policy
• Texas Department of Insurance: Title Insurance FAQ
• Texas Department of Insurance: Basic Manual of Title Insurance
• Texas Insurance Code Chapter 2703 (Rates and Forms)
• TREC: One to Four Family Residential Contract (Resale)

This post is educational content for Texas real estate sales agent candidates. It is not legal, insurance, or title advice. Title insurance is issued by licensed title companies under rules set by the Texas Department of Insurance, and those rules can change, so confirm the current Texas Insurance Code, the Basic Manual of Title Insurance, and the current TREC contract, and consult a professional before you rely on any point in a real transaction.