Under what condition are money losses from encumbrances covered by title insurance?

Title insurance provides protection against financial loss due to defects in the title, which includes encumbrances such as liens or easements that may affect the property's value. The correct choice, stating that coverage applies only if the encumbrances are not excluded or excepted from the insurance policy, is important because it highlights a key aspect of title insurance.

When obtaining title insurance, a buyer should be aware of the specific terms and conditions set forth in the policy. Most title insurance policies will detail various exclusions and exceptions; for instance, certain known issues at the time of purchasing the insurance might not be covered. Therefore, if the encumbrance is explicitly identified as excluded, then coverage would not apply to any financial losses resulting from that issue.

This coverage ensures that if a buyer encounters unexpected encumbrances that were not disclosed or are not part of the exceptions listed in the policy, they are safeguarded against financial loss. Ensuring that encumbrances are not excluded from coverage allows the insured party to have confidence in their investment and protection against possible legal disputes or financial burdens related to the property.