Selling a home isn’t always plain sailing. There may be one or two stumbling blocks along the way. Often, these can be issues discovered in a property survey or local authority searches.
The good news is, taking out indemnity insurance may just help you. Let's take a look at what it is and how it works.
What is indemnity insurance?
Indemnity insurance is a type of insurance policy designed to protect you against financial losses arising from a property or legal transaction. It's normally used to overcome issues that are discovered during the conveyancing process.
You can buy indemnity insurance when buying or selling a home.
It can offer financial protection against any future claims and liabilities that might arise from issues related to your property.
But bear in mind that this type of insurance tends to cover the legal costs that may arise. It doesn’t typically cover the costs of actually fixing an issue.
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What does indemnity insurance cover?
You can buy indemnity insurance for a range of different scenarios. Some of the more common ones include:
Building regulations approval. Certain building work requires building regulations approval to show that it meets industry standards. If this paperwork is missing, insurance can protect against enforcement action from the local council.
Planning permission. Similar to building regulations approval, insurance could provide protection where building work has been carried out without evidence of planning permission.
Installation of boilers and windows. Paperwork is also needed to show that boilers and windows have been installed correctly. Insurance could be used to protect against any problems that arise as a result of missing documents.
Restrictive covenants. Some properties come with conditions on how they can be used or developed. For example, certain alterations or use of land may be prohibited. Insurance can provide protection if a covenant is breached.
Chancel repair liability. A more unusual conundrum for those not used to property law. If a property is located near a church, the owner could be on the hook for the cost of church repairs. Insurance could pick up the costs if you’re faced with a bill.
Absence of easement. In some scenarios, you may have to cross someone else’s property to get to yours. Insurance could protect you if there’s a dispute over access.
Why take out indemnity insurance?
There are several reasons why you might want to buy indemnity insurance. They can include:
providing some protection against third party claims relating to specific problems
giving peace of mind to property owners, knowing that they have protection in place
meeting mortgage lender requirements. This could be in situations where the lender will give the green light to a mortgage on the condition that indemnity insurance is in place
offering a potentially quick and cost-effective way to deal with issues thrown up during conveyancing
keeping a transaction moving forward to completion.
Who usually buys indemnity insurance?
There are no hard and fast rules about who takes out indemnity insurance. The question of who buys it can sometimes be subject to negotiation during the conveyancing process.
Often, it’s the seller who buys indemnity insurance, particularly if they’ve caused the issue. For example, they can’t get their hands on vital paperwork or they’ve carried out building work without local authority consent.
But sometimes it’s the buyer who takes it out. After all, they are likely to get full benefit of it.
On other occasions, the buyer and seller might decide to split the cost of the insurance. It all depends on the circumstances and, sometimes, who is most determined to press ahead with the transaction.
How does indemnity insurance work?
If you’re selling a property with an issue that could pose a problem for the buyer (or their lender), indemnity insurance could offer a solution.
Let’s say you don’t have the all-important paperwork to show that the alterations you did to your property meet industry standards.
The buyer will probably want to do their own investigations to make sure that the building work has been done correctly and the property is safe.
And they might want to get indemnity insurance to cover the cost of any enforcement action that could crop up further down the line.
If you’re keen to keep the sale on track, it may be worth putting your hand in your pocket for the insurance.
If this is the case, your solicitor or conveyancer will have good knowledge on how to go about getting a quote that’s best suited to your needs. They may well recommend an insurance broker to guide you through which insurers and policies to consider. You don’t normally find indemnity insurance of this type through comparison websites.
The next stage is to get quotes and review the T&Cs with a fine-tooth comb. And once you’ve selected the right policy for your circumstances, it’s time to press ahead with the application.
Finally, you’ll need to share the details and documents with all the conveyancers or solicitors involved in the transaction.
How much is indemnity insurance?
The cost of indemnity insurance depends on a variety of factors, such as the value of your home, the issue you’re looking to cover, and the insurer.
As a general guide, it can be less than £50 or run into the hundreds of pounds. Unlike many other types of insurance, it’s normally a one-off payment.
FAQ
How long does indemnity insurance last?
Indemnity insurance is typically linked to a property and can be handed over to subsequent owners for their benefit. This is why it can be a good solution when trying to get a sale over the line.
Always check that the policy details remain relevant. If the property increases in value, this may affect the insurance.
Do I need indemnity insurance when selling a house?
No, you don’t necessarily need indemnity insurance when selling your home.
But if there are issues with your property, rather than fix them, you may want to consider taking out indemnity insurance.
Is it always worth buying indemnity insurance?
If your property does have issues, it’s well worth getting professional advice on whether buying indemnity insurance is the best approach to take.
Buying indemnity insurance can provide financial protection and give peace of mind to the owner of the property.
Plus, it may be a quicker and more cost-effective way to keep a transaction on track than fixing the problem yourself.
But it’s important to look at all the angles. You may be able to resolve the issue before the sale completes, eradicating the need to go down the insurance route.
Or you may discover that on closer inspection, it's not worth taking out the policy. For instance, if building work no longer falls within the timeframe for a local council to take enforcement action.
It’s also worth bearing in mind that many indemnity insurance policies become invalid if you tell someone else about the issue. That means that if you get indemnity insurance to cover an issue during the conveyancing process, and you then fix it further down the line, the insurance would no longer cover you.
As with any decision of this nature, it’s vital to go through all the pros and cons before you come to a decision.
Who benefits from indemnity insurance?
Indemnity insurance can benefit both buyers and sellers who are keen to overcome issues during the conveyancing process and get a sale over the line.