When you buy a home or refinance one, you need a simple insurance policy that I just can't get people to buy…even though being without it can be deadly to your finances.

Picture this: When you do a refinance, you dump Bank A and pay them off with proceeds lent by Bank B. But what if the money is stolen while being wired from bank to bank? In many states, you could owe both mortgages -- even though you were just doing a refi in good faith!

What is owner's title insurance?

The Denver Post reports this is happening in case after case. It could be organized crime tapping into a bank's wiring system and swiping money after the refi has taken place. Or it could dishonest employees who steal the money at the time of the refi.

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This is just a simple example of how you can end up with financial Armageddon through no fault of your own. The people in The Denver Post article didn't do anything wrong. In fact, they were doing everything right by getting a lower interest rate on their housing payment.

There is any number of similar circumstances I talked about over the years that come to mind. I recall one case where people bought in a subdivision and the heirs of the original property owner alleged in court that the land was never properly purchased...so it still belonged to the family. All those people who bought in the subdivision lacked a key thing and lost their homes and whatever money they had in the deal.

They didn't buy owner's title insurance.

In general, owner's title insurance (aka simultaneous title insurance) protects you from the possibility that someone may come along and contest your ownership of a property. There's a big misimpression that when you buy a home, you're paying a premium for title insurance and that protects you. No! That insurance just protects the bank.

Don't rely on the title insurance the lender buys; you need your own.

In the case of the refis, homeowners are getting hurt, not the bank. It shouldn't be this way, but the fact remains that owner's title insurance is the best defense (though not ironclad) you have against the unknown. The odds of something crazy like this happening? Almost none. And if it does happen, it's not your day, month or year, that's for sure!

So if you are buying or refinancing, ask about owner's title policy. It is the best insurance you can buy when you buy that home.

EntitleDirect.com sells title insurance directly and can save you up to 35 percent, though that figure varies widely by state. Other competitors in the marketplace include OneTitle National Guaranty and TitleForward.

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