How does an abstract of title differ from a title insurance policy?

An abstract of title serves as a summary of the chain of ownership and the relevant legal history of a particular piece of real property, including details about past owners, mortgages, liens, and other encumbrances. This document provides prospective buyers or lenders with vital information about the property's title history, highlighting any potential issues that may need to be addressed before closing a real estate transaction.

In contrast, a title insurance policy is a form of protection. It is issued by a title insurance company and guarantees against losses arising from defects in the title that may not have been revealed in the abstract. This policy provides coverage for the insured party if any claims against the title arise after the purchase, safeguarding their financial investment.

Understanding these distinctions is crucial for anyone dealing with real estate transactions, as both the abstract of title and the title insurance policy serve different but complementary purposes in ensuring the security and legality of property ownership. The other options do not accurately reflect the fundamental differences between these two important documents within the context of real estate.