What is an exception in a title policy?

An exception in a title policy refers to a specific exclusion for items that are not covered by the policy. This means that while the title insurance protects against certain risks, any exceptions listed in the policy detail what the insurance company will not cover. For instance, an exception might exclude certain liens, easements, or other encumbrances that could affect the ownership or use of the property.

Understanding exceptions is crucial for anyone involved in real estate transactions, as it clarifies what liabilities a purchaser may still be responsible for despite having title insurance. The presence of carefully defined exceptions helps both the insurer and the insured by delineating the boundaries of coverage, ensuring that the insured is aware of specific risks that remain.

On the other hand, the other choices do not accurately capture the definition of an exception in a title policy. Guaranteeing undisputed ownership pertains more to what the title insurance aims to provide rather than what an exception entails. Increasing insured value or allowing for increased premiums refer to financial aspects of the policy rather than the exclusions that an exception represents.