Because US ownership is proved through a chain of recorded deeds rather than a guaranteed central register, a hidden defect — an old unpaid lien, a mis-recorded boundary, a forged signature, an unknown heir — can surface after purchase. Title insurance, bought with a one-off premium at closing, indemnifies against those pre-existing defects and funds the legal defence.
There are two policies: an owner's policy protecting the buyer's equity, and a lender's policy protecting the mortgage. A title search and examination precede the policy, so most problems are cleared before closing; the insurance covers what the search could not reveal.
In registered-title systems like England & Wales the state register itself gives much of this protection, but specific "defective title" or "restrictive covenant" indemnity policies are still used to cover a known, discrete risk and let a sale proceed.