What is indemnity insurance when buying a house?

What is indemnity insurance?

Indemnity insurance is a type of insurance that acts as a protective measure during property transactions. It provides coverage for both buyers and sellers against financial losses that may arise from unexpected property defects or issues discovered after the sale is completed.

In essence, indemnity insurance is a safety net for property transactions. If a snag like a property defect pops up during surveys or searches, either the buyer or seller can opt for indemnity insurance. This policy shields them from potential legal actions or loss of property value due to the identified defect.

Solicitors and indemnity insurance

Solicitors handling conveyancing matters might suggest indemnity insurance if there’s a concern about an aspect of the property that could jeopardize the sale. This could include missing documentation, such as a boiler installation certificate, or details of prior planning applications or construction work, typically involving low-risk features of the property.

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What is covered by indemnity insurance?

Contrary to popular belief, indemnity insurance doesn’t foot the bill for fixing defects like replacing a faulty boiler. However, it does cover legal expenses in case a third-party files a claim related to the identified issue or defect in the future.

How much does it cost?

When asking how much does indemnity insurance cost, it's important to note that prices vary based on the type of indemnity and the desired coverage limit. Typically, premiums are several hundred pounds, paid as a one-off fee.

Who's protected?

Both the buyer and seller benefit from indemnity insurance coverage, which remains valid for the property's lifespan.

Who pays?

Typically, the seller covers the indemnity insurance expense since it pertains to issues within their property. They stand to lose more if the sale falls through due to uninsured risks.

Common indemnity insurance types

Restrictive covenant insurance

Restrictive covenant insurance covers breaches of restrictive covenants attached to a property. These covenants are rules placed on the property by previous owners that restrict certain activities, such as building extensions or running a business. If a previous owner breached one of these covenants, this insurance would protect you from any financial implications, including legal fees and potential fines.

Planning permission insurance

Planning permission insurance protects against issues arising from unauthorized alterations made to the property. If previous owners carried out work without obtaining the necessary planning permissions or building regulation certificates, this insurance covers any costs associated with rectifying these issues, including legal expenses and potential penalties imposed by local authorities.

Boiler indemnity

Boiler indemnity insurance covers claims related to the safety of the boiler if the installation certificates are missing. Boilers installed without the proper certification can raise safety concerns. This insurance provides peace of mind by covering any legal costs or claims that may arise from the boiler’s safety issues, while also potentially covering inspection costs to ensure the boiler meets current safety standards.

Window indemnity

Window indemnity insurance provides protection against enforcement actions for windows that lack proper certification. Since 2002, window installations or replacements should come with a FENSA certificate to prove they meet building regulations. If these certificates are missing, this insurance covers any legal costs or fines resulting from local authority enforcement, ensuring that you won’t face unexpected expenses related to your windows.

Chancel repairs

Chancel repair insurance protects property owners from unexpected financial responsibilities for repairing the chancel of a nearby church. Some properties are historically obligated to contribute to church repairs, a requirement often revealed during property searches. This insurance covers the cost of any such contributions or legal fees, shielding you from surprising and potentially significant financial liabilities.

Absence of easement

Absence of easement insurance covers the loss of property value if easement rights are not formally granted. Easement rights allow you to use part of another property, such as accessing a driveway through a neighbour’s land. If these rights are withheld, this insurance protects against any resulting legal disputes or decrease in property value, ensuring that you can fully utilize your property without legal complications.

Insolvency

Insolvency indemnity insurance protects against claims by creditors if financial assistance for the property deposit was received from a third party. Should the individual who provided financial help encounter financial difficulties, their creditors might attempt to claim part of your property. This insurance ensures that your ownership remains secure, protecting you from such claims and giving you peace of mind about your financial arrangements.

Our experts can help

Understanding indemnity insurance when buying a house is important, even though it may not be necessary for every transaction. Being informed about this type of insurance can save you from potential issues down the road.

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