It's insurance for that your lender requires, the the title company insures is clear... if a cloud (problem) should show up on your title at some later date... the title company is taking responsibility for clearing it up.
The seller also offers YOU a title insurance policy (for which they paid more than you're paying) insuring YOU that your title is clear.
Real estate law and closing costs vary from state to state and closing costs. You need to direct this question in the appropriate zip code. For some reason your question is coming in to the Brooklyn NY forum, not IL. Either way, you can also contact some Title companies in the area your looking. Shop around to get estimates from several different title companies and see what they say. Good luck!
Mitchell S. Feldman
Associate Broker/ Director of Sales
Madison Estates & Properties, Inc.
Office: (718) 645-1665/ Cell: (917) 805-0783