What is Indemnity Insurance When Buying a House and Why Would You Need It?
Estimated reading time 8 minutes
Are you in the process of buying or hoping to sell your house fast? It can be a stressful time, can’t it? Stacks of paperwork, financial checks, and the risk of everything collapsing at the last minute. It all adds up to the hope that it can all be finalised quickly, without hassle and free from any stress.
To add to the list of things that may come your way is indemnity insurance. Often suggested by your conveyancer, it can be a policy worth investing in. However, many people either choose to ignore it or take it out only to find it was not necessary.
What is indemnity insurance?
Indemnity insurance is a type of policy that safeguards against significant expenses resulting from unresolved legal property issues or cases with potential high costs.
For example, if you buy a house but the seller cannot provide a certain certificate, should a local authority wish to pursue a claim as you don’t hold the certificate, you will be covered by your indemnity insurance policy. It can also be used for items such as boilers or windows but please note, it does not cover the work around repairing or replacing them.
In many cases you would not need indemnity insurance, but should it be advised by your conveyancer, it could be protecting you from some very expensive outlay in the future.
So, in summary, indemnity insurance covers the cost implications of a third party making a claim against any defect within the property you are purchasing.
What does indemnity insurance cover?
Should you have been advised that an indemnity insurance policy is worth taking out, it would be of benefit to know exactly what it covers. Differing from other home insurance policies, you wouldn’t want to take one out only to find you needed the other or perhaps even both.
Indemnity insurance protects you from costs associated with legal defects within the property that can either not be fixed or if they were to be, would cost a significant sum and take a very long time to complete. Now whilst it doesn’t cover the costs of fixing the problem, it covers the costs that could arise from a third party making a claim against you for the defect at the property.
In many cases, the things covered are low risk but high cost so a policy, whilst maybe never needing to be used, stands to save you lots of money should a problem arise.
There are a variety of policies you can obtain and further down the page, we will cover each one.
Who is covered by indemnity insurance?
A policy is for the property and not the people as such, so any indemnity insurance policy covers the people that live there from when the policy is taken out and anyone who lives there after the original residents have left. Should there be a mortgage on the property, the policy will also cover the lender too.
What indemnity insurance policies are there?
There are several types of indemnity insurance, each offering different forms of protection so it would be best to speak to your conveyancer for full information regarding the policy or policies you may need. In many cases, the need for such a policy can be avoided if you have all the correct documents for selling a house. The most common indemnity insurance policies are:
Planning permission indemnity insurance
If you are buying a property where the owner has carried out work on it where planning permission was required but not sought or there is no proof the work was carried out within the permitted rights of the property an indemnity policy could be useful.
Taking out one for such matters will protect you from local authorities pursuing you for being in breach of the regulations.
Indemnity insurance for boilers
A boiler can be a costly expense for anyone when it breaks down and if you are selling a house you will want to ensure that the buyer is confident they are buying a property with no major problems. Should you no longer have the certificate that proves the safe installation of your boiler, it may be best to take out an indemnity policy. However, should you have a gas safety certificate, you can reassure the buyer that the boiler operates safely and then you will not need to pay out for an indemnity policy.
Buyers should focus on the safe working of the boiler, if this can be proven you should be fine. Never accept an indemnity policy as certification of the safety of the boiler.
Restrictive covenant indemnity insurance
Some properties, especially older ones, may contain certain restrictions of use within the property deeds. Such rules can often be forgotten about and over time, the property owners may inadvertently breach these restrictions, sometimes they may even breach them intentionally! With these restrictions now openly broken, an indemnity policy for restrictive covenants will protect you if that breach was to cause problems in the future.
Indemnity insurance for windows
Any new doors or windows must be installed properly and have you presented with a FENSA certificate at the completion of the work. This has been a rule in England and Wales since 2002 and shows that the doors and windows are installed complying with building regulations.
If you are selling your house and no longer have the certificates, an indemnity policy will cover you should the local authorities take action over the windows or doors not complying with regulations.
Chancel repairs indemnity insurance
If the property is near a church, residents can be liable for costs to help repair it. A Chancel repairs indemnity insurance policy would cover this.
Absentee landlord indemnity insurance
If the property you are buying has an absent freeholder there is a chance the landlord may one day appear on the scene and make a claim for unpaid ground rents or other lease obligations. A policy like this will cover you from such things. In many cases, a lender will only consider offering a mortgage if this type of policy is taken out.
Insolvency indemnity insurance
Buying a property can be expensive so sometimes you may be assisted financially by a family member or friend to cover the deposit or similar costs. If that person was to ever go bankrupt, the creditors may look at your property as a way to cover any debts. An indemnity policy will stop this from happening.
How much does indemnity insurance cost?
An indemnity insurance policy will vary in cost depending on what type of policy you need as well as the value of the property the policy is associated with.
A chancel repairs policy for example could cost very little but a policy that covers missing certification can cost hundreds of pounds. Such is the wide-ranging nature of the policies that the costs have a very wide spectrum from low to high. You could be paying as little as £20 but as much as £500.
Who pays indemnity insurance?
Either the buyer or the seller can purchase the policy and there is a case for each being the one that should pay it. Many would say it falls under the responsibility of the buyer, they after all, want the house and will be living there and as a result, are responsible for decisions over whether they think the risks raised by the conveyancer require covering.
On the other side of the coin, we have an argument for sellers paying for indemnity insurance. If they are the ones at fault for not doing things correctly, they should pay the fees to make sure others are protected. At the same time, as they are more likely to want a quick sale, the offer to pay for it may also encourage more buyers. There may also be times when both parties agree to split the cost.
How can you get indemnity insurance?
Indemnity insurance, as we have seen, is a little different to typical home, car, phone or travel insurance. As a result, you will need to speak to a specialist firm to have it organised. Your conveyancer will be able to advise on providers that offer the service.