A guide to indemnity insurance
Indemnity insurance is usually taken out during property transactions. This kind of policy insures the buyer and seller against any financial loss that may occur in the future from an issue relating to the property. If there is a risk of a mortgage lender withholding funds, the solicitor can ask the buyer or seller to take out indemnity insurance.
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What is indemnity insurance?
Indemnity insurance is a type of insurance that is sometimes needed during a property transaction. If a defect with the property is revealed through a survey or searches that might put a house purchase at risk, the buyer or seller can take out an indemnity insurance policy. This will protect the buyer or seller from any legal action, or loss of value, that may arise in the future from that particular defect.
Why do solicitors ask for indemnity insurance?
A conveyancing solicitor may ask a buyer or seller to take out indemnity insurance if they are concerned that there is an issue with the property that could affect the sale. It could be that the seller can’t find the certificate from when their boiler was installed, or details of a previous planning application or building work that has taken place. Usually it relates to a lack of paperwork to a low risk feature of the property.
What does indemnity insurance cover?
Indemnity insurance does not cover the cost of rectifying a defect – for example, it won’t cover the cost of replacing a boiler. It will, however, cover the legal costs of any claim from a third party that may arise from that issue, problem or defect in the future.
How much does indemnity insurance cost?
The cost of an indemnity insurance policy will vary. The cost will depend on the type of indemnity and the financial limit you want cover for. The higher the limit the more your policy will cost. On average, you should expect to pay several hundred pounds. Premiums are paid in one-off payments.
Who is covered?
Both the buyer and the seller are covered by the indemnity insurance policy. The cover is valid for life.
Who pays for indemnity insurance?
It is usually the seller that pays, because it relates to a problem, defect or issue within their property, and they have more to lose if the indemnity insurance is not taken out and the house sale falls through.
Common types of indemnity insurance
Restrictive covenant insurance
If the property has a restrictive covenant attached to it, and this covenant has been breached in the past by a previous owner, indemnity insurance will cover you for any financial implications that ensue from this. Restrictive covenants place a restriction on specific activities taking place on the property or land, and are written into the deeds of a property.
Planning permission insurance
If previous owners have made alterations to the property without planning permission, or in a way that violates the planning regulations that were in place at the time, indemnity insurance can be taken out. This will also cover missing building regulations certificates for work that has taken place.
Indemnity for a boiler
Sellers who can’t find the installation certificate that goes with their boiler might need indemnity insurance to cover for any claims made about the safety of the appliance by the buyer, or future owners. However, they should first try and get a gas safety certificate to reassure the buyers that the boiler is safe.
Indemnity for windows
Windows that have been installed or replaced since 2002 will have had a FENSA certificate issued to the property owner. If the seller is unable to find theirs, then indemnity insurance provides cover against any local authority enforcement that claims the windows do not meet building regulations.
Chancel repairs
It is a little known fact that some properties located near churches have a financial responsibility to contribute to the repairs of the chancel inside the church. This would usually be revealed during the property searches and indemnity insurance would cover these costs should they occur.
Absence of easement
Indemnity insurance will also cover any loss of value from a property if the owners have easement rights withheld. In legal terms this is called ‘absence of easement’. This is when permission has to be granted from another property owner to cross their land in order to gain access to your property.
Insolvency
If buyers have needed financial help from a third party to get their deposit together, indemnity insurance may be recommended. This is because if the person that you have received funds from ever gets into financial trouble, you will be covered against any claim by creditors against them.
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Indemnity insurance when buying a house is something only a few people will have to consider, but it is worth knowing about if it is mentioned by your solicitor. In the meantime, register for property alerts to get a notification as soon as properties you are interested come onto the market.