A guide to insurance coverage for real estate transactions, including Closinglock’s newly enhanced insurance policy, the industry’s highest, most comprehensive, direct insurance coverage for up to $2.5 million.
The stakes in real estate have never been higher, adding additional pressure to settlement companies as they navigate the evolving threat of fraud, protecting their bottom line, and market uncertainty. With so much to manage, title teams are seeking an additional layer of assurance in their transaction management, which is why insurance has become an important topic of conversation.
However, the discussion around insurance is complex and lacks clarity, making it difficult to understand what is covered. Here, we’ll delve into the options available, explain what insurance means in the context of fraud prevention, and provide guidelines for understanding insurance terminology.
What type of insurance is currently available for real estate transactions?
Despite the need for insurance and the vast numbers involved, the industry has been slow to keep up. When a buyer sends a wire through any bank, they are 100% responsible for where that goes. If it goes to the wrong place, the bank takes no responsibility, and the buyer (or title company) will likely foot the bill. There have been no insurance policies specifically designed to protect real estate transactions and meet the needs of title companies.
Until now.
Closinglock’s secure platform now includes the only insurance policy available in the market that covers the entire flow of funds in real estate transactions, from earnest money to cash-to-close. Closinglock insurance is included at no additional cost to customers and without confusing exclusions or misleading promises.
While there may be fragmented alternatives for parts of the closing transaction, the language in insurance policies often requires expert knowledge to understand. Within that, there may be buried exclusions.
When considering insurance options, especially if there is an upcharge for transactions over a particular amount, you should be clear about what’s covered. For example, make sure you know that if a wire fraud were successful as a result of one of your vendor’s third-party providers having a breach or an electrical malfunction, then you would still be covered under the policy. It can be tempting to skip the small print, but it’s worth knowing what you’re risking, especially if you are paying for it.
How is Closinglock direct wire fraud insurance different from an E&O policy?
An Errors and Omissions Insurance (E&O) policy is a type of professional liability insurance that protects businesses and their employees against claims made by clients for inadequate work, mistakes, or negligence. In the real estate and title industries, an E&O policy is essential because it covers potential legal costs and damages if a client alleges that an error or omission in a transaction caused them financial loss.
An E&O policy is particularly relevant in title since even minor oversights can lead to significant financial or legal consequences. That’s why you have your own first-party E&O policy to cover your businesses. Closinglock also has a first-party E&O policy for the same reasons.
Closinglock wire fraud insurance coverage is separate from, and in addition to, an E&O policy because it has been developed specifically for the transaction closing process within the Closinglock platform. It offers additional protection for up to $2.5 million per wire transfer verified in the platform, including secure wire instruction exchanges, bank account verifications, payments made with the Good Funds Payment tool, and payoff verifications completed in Closinglock*. This makes it the highest coverage available in the market.
Backed by Lloyds of London, this policy provides direct third-party coverage for Closinglock customers, helping them reduce liability and protect clients with confidence.
What is the difference between first-party and third-party insurance?
We’re going to get into the fine print here, but it’s an important distinction. The difference between first-party and third-party insurance is who suffers the loss. An E&O policy is first-party insurance, and companies invest in it to protect themselves as first parties so that they are covered if they themselves suffer a loss.
Closinglock Insurance is a third-party policy we have invested in and pay for specifically to protect our customers, the third parties, should they suffer a loss when using our platform. That means that, as a Closinglock customer, you will be directly covered under the Closinglock Insurance policy in the unlikely event of a loss on our platform.
What is the difference between direct insurance and being an additional insured party?
Closinglock Insurance means customers become directly insured under the policy, complete with a certificate of insurance, offering streamlined claim processing and direct access to protections and payouts.
As a Closinglock customer, your business is explicitly named in the policy, giving you the same rights to file claims and receive payouts as a fully protected party. This ensures comprehensive coverage without the limitations often associated with additional insured status when the primary policyholder remains the main insured entity.
How much does insurance for real estate transactions cost?
Closinglock Insurance is the only policy in the market that covers the entire flow of funds in real estate transactions for up to $2.5 million and is included as part of the platform at no additional cost. Other insurance policies that cover parts of the closing process may be available, and the price will depend on how much coverage you’re looking for. For example, if a transaction is over a certain dollar amount, it may cost more, so it can be a good idea to look at your average transaction volume and identify whether the upcharge will be cost-effective. If having insurance is something you’re committed to doing to mitigate risk, you’re likely going to want it for every transaction, so make sure you understand how much that will cost.
Is there a difference between filing a first-party or a third-party claim?
If you have to file a claim, the process will be slightly different depending on whether it’s a first- or third-party policy. With a first-party policy, the onus will be on you to make the claim.
Closinglock Insurance is a third-party policy, which means that you, as a customer, are a directly named insured party and will be eligible to receive claim payouts directly, just like with a first-party policy. However, should this unlikely event occur, you can work with the Closinglock Support Team, which can handle the claims process on your behalf.
While fraud is an unfortunate reality of today’s market, there are multiple steps you can take to mitigate the risk of becoming a victim. By combining industry-leading fraud prevention tools with direct wire fraud insurance coverage, you can confidently protect your business and your clients.
To learn how Closinglock can protect your business from fraud, streamline operations, and make your job easier, request a demo with a member of our team. Closinglock is a fraud-prevention software revolutionizing the real estate industry’s transfer of funds and information. Title companies can send wire instructions, securely exchange documents for e-signing, and receive payments from one secure platform.
*Policy excludes international wire instructions, whether sent or received. For manually uploaded wire instructions, clients must complete ID Verification successfully, and only domestic clients are eligible.