How much does a loan policy typically cover in a real estate transaction?

A loan policy in a real estate transaction typically covers up to the amount of the principal on the loan. This means that the insurance provided protects the lender's financial interest in the property, specifically the amount they have financed. The primary function of a loan policy is to ensure that the lender is protected against any title defects or issues that may arise, which could affect their ability to collect on the loan.

The policy generally does not cover accrued interest, the full market value of the property, or any additional costs associated with the loan. These aspects are outside the scope of what a loan title insurance policy is designed to protect. Instead, the focus remains on the principal amount to safeguard the lender's investment in the event of disputes or claims against the title. This distinction is crucial for understanding the specific role and limitations of a loan policy in real estate transactions.