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Indemnity insurance is a protective insurance policy taken out during property transactions. It will cover you against any legal property issues that would be difficult to resolve. Although the chances are small that you encounter a legal defect, the price would be costly if you did.
Whether you’re buying or selling a house, your conveyancer might suggest you need to take out a policy to protect yourself over any third-party claims during and after the conveyancing process, such as title or deed issues.
Compare My Move work with property experts to help keep you informed throughout the buying process. In this guide, we explain what indemnity insurance is, what the policy covers, how much is indemnity insurance and who has to pay.
When you’re buying or selling a house, there will be a certain type of indemnity policy you can take out to cover your back. The most common is title indemnity insurance and this article will give a breakdown of the type of situation the insurance will cover.
What is title indemnity insurance?
Title indemnity insurance, also known as legal indemnity insurance, will cover you if for some reason you or your bank have lost the original title deeds for the sale of your house. It will also protect you against inaccurate or incomplete Land Registry documents. Title indemnity insurance will also help speed things up if the conveyancing process is being held up by legal or planning permission problems.
What is professional indemnity insurance?
Professional indemnity insurance is a type of business insurance taken out by professionals to cover them in event that they make a mistake in their work that could lead to financial loss. This isn’t relevant to a buyer or seller but should be noted to avoid when you’re comparing quotes for indemnity insurance.
Indemnity insurance will cover the buyer and the mortgage lender if the legal defect affected the loss of the property’s value. Whilst many issues covered under indemnity insurance have a very small chance of occurring, it would mean an expensive bill later down the line. We’ve listed some common issues covered under indemnity insurance:
Ensuring all planning and building regulations are obtained will be included in your solicitor fees for buying a house. In the unlikely case that the previous owner of the property had building work done without planning permission - or the work was done some time ago with no record of consent being kept,
your indemnity insurance will protect you from any legal action. You would be covered against any local authority enforcement if you’re missing building regulation certificates too.
For peace of mind, it’s recommended to get a property survey to highlight any dangerous building or structural work before you commit to buying the house. By comparing surveying quotes, you’ll save money when it comes to the whole buying a house process.
Restrictive covenants are restrictions to a property made by the previous owner or developers and are written into the deeds. The most common restrictive covenant is preventing the owner from making alterations to the property by adding an outbuilding or extension. Other restrictive covenants include prohibiting owners from keeping livestock on the land, letting out the property, or selling it on for use as a second or holiday home.
When you exchange contracts and become the legal owner of the property, you’re agreeing to these restrictive covenants. The issue is that many people aren’t aware of these as they are sometimes not even listed in your title deeds, or if they are they are in small print. Your indemnity insurance policy will cover any issues that occur with restrictive covenants and the previous owner.
If you are selling or buying a house, you should have an installation certificate or gas safety certificate. If you’re selling your house and you don’t have either, then an indemnity policy will cover this, giving the buyer reassurance.
For buyers, it should be noted that indemnity insurance for a boiler will not cover repair costs so you should chase up a gas safety certificate.
It’s legal a requirement in England and Wales to have a FENSA certificate provided if you’ve had new windows installed since 2002. Most people will take out an indemnity policy if you’re missing a certificate, which can help when it comes to selling your house.
If for any reason your local authority took action against your misplaced FENSA certificate, your indemnity insurance policy will help to protect you against any of these claims or losses.
An indemnity insurance policy will cover a range of issues, some less common than others. We’ve listed the other reasons you may need to take out indemnity insurance:
1. Chancel repairs:
If the property you’re buying is near a church, you might have to contribute to cover any repair costs the church may need. In this case, your indemnity insurance policy will cover the cost for these repairs. Your conveyancer will inform you if you’re liable to pay chancel repairs once they have carried out their >span class="redactor-unlink">conveyancing searches.
2. Absence of easement:
If you need to access the property via land that hasn’t been granted a right of easement, you will need to take out indemnity insurance. Right of easement will give you the right to use the land on your property. Your indemnity insurance will mean that you’ll be covered in the case of paying to establish the easement to the property.
3. Insolvency act:
If you’re buying a house using a gifted deposit, you will need to have indemnity insurance to continue with the transaction. It will cover you in the unlikely event of the gifted deposit owner going bankrupt.
It’s not compulsory to take out indemnity insurance when you buy a house, but it will give you peace of mind that you’re protected if the worst were to happen. The house buying and selling process can be stressful enough without the thought of legal issues and heavy fines appearing later down the line.
The time between exchange of contracts and completion day can be daunting, with the chance of being gazumped by another buyer still possible. Many buyers and sellers take out indemnity insurance to help speed up that time without having to delay the process by searching for missing documents or solving issues with planning permission.
The price of Indemnity insurance can vary from £20 to £300, depending on the value of the property and the type of issue the policy needs to cover. Unlike other types of insurance, it’s just a one-off payment so if you need the policy to cover a bigger issue such as planning permission or building work, then expect the insurance to cost more.
Talk to your solicitor or conveyancer about indemnity insurance as they will be the one to provide you with a quote for your policy.
Who pays for indemnity insurance will depend on your circumstances and is usually up for negotiation. During a sale, it is typically the case that the vendor ‘squeezes’ the buyer to pay the insurance, simply to progress the transaction.
As the insurance policy will benefit the buyer because they will be the new owner of the property, some argue that the buyer should pay for indemnity insurance and add it to their total cost of buying a house. If the seller is at fault regarding the issue with the property, they will feel the need to pay for the insurance.
If the seller already has taken out an indemnity insurance policy on the property, then it is valid for you to use. You will still be protected under the insurance as it comes with the property once you’ve exchanged contracts.
Whilst there is no charge to transfer the policy to you, if the property value increases, you might have to pay more towards the insurance policy to ensure it covers everything needed. This might be a one-off additional payment to ensure you’re covered.
It’s not a legal requirement to take out an indemnity insurance policy, but it will reassure you that you’re covered in the worst-case scenario. Your conveyancer or solicitor will suggest whether you need to get indemnity insurance depending on your situation. Whilst your conveyancer will know best, it is entirely up to you whether you take out the policy or not.
As an indemnity policy is tied to the property and not the owner, indemnity insurance can last forever. It’s important to note, if you inform a third party of the reason you have indemnity insurance, the policy becomes invalid and no longer protected against this issue.
When you’re ready to begin the moving house process, make sure you compare removal companies, property surveyors and licensed conveyancers with Compare My Move. We’ve got a network of verified and trusted partners who help every step of the moving house journey. We even help you to save up to 70% on the cost of your move, too.