Whether you’re investigating putting your house on the market or you’re already in the process of selling, you may have received a recommendation to purchase home indemnity insurance. This is quite specific property industry jargon and so you may be left scratching your head and wondering whether you really need it. In this guide we’ll give you the lowdown on home indemnity insurance and help you answer questions like: what is an indemnity policy? What does indemnity insurance cover? How much does an indemnity policy cost? And, do I really need indemnity insurance?
What is an indemnity policy?
You guessed it, home indemnity insurance is a type of insurance! It usually gives sellers some protection during conveyancing transactions in case there is some sort of defect with the property that could give rise to legal action further down the line. Indemnity policies are typically a one-off payment, and the cover lasts forever.
Buyers can also take out indemnity insurance to protect them against future problems associated with the purchase of a property. Conveyancing solicitors often suggest taking out an indemnity policy when building certifications are incomplete. For example, you may be purchasing a property that is missing a particular building regulation certificate, or the property seller is unable to provide planning permission related to an extension that they built. In instances like this, you can take out a home indemnity insurance policy that will protect you against future losses or claims that might arise as a result of the missing documentation.
Buyers can also take out insurance that covers them against the potential devaluation of the property caused by any defects, such as subsidence. This type of insurance typically covers both the mortgage lender and the buyer in the event that the property loses value. Whilst these kinds of issues are relatively rare they can generate significant losses, so indemnity insurance provides protection against those losses.
What does an indemnity policy cover?
It will depend on the individual policy, but home indemnity insurance usually covers a range of risks from planning permission problems to missing particulars or building regulation certification. We’ve compiled a list of the most common indemnity policies here:
- Planning Permission: if there has been building work completed without evidence of planning permission, indemnity insurance would cover you against costs that could arise due to claims from a neighbour or the council for example.
- Building Regulations: this type of policy covers against costs that could arise as a result of the removal, correction or alteration of unregulated work.
- Restrictive Covenants: sometimes property titles contain restrictive covenants (for example restrictions against building extensions) that might have been breached at some point. If costs are incurred as a result of the breach, an indemnity policy against restrictive covenants covers costs of both loss of property value and any legal expenses that might be incurred fighting a covenant.
- Chancel Repair: if your property is located in a parochial church council boundary you can be liable for church repair costs. This type of policy protects against those costs.
- Insolvency: if you have jointly purchased your property with another contributor who is later declared bankrupt, creditors could try to make a claim on your property to recover their losses. An indemnity policy would protect against costs that would be incurred as a result of this type of claim.
- Missing build-over agreement: if your property is built over, or within, a three metre distance of a sewer without a build over agreement from the water authority then there can be costs incurred to access the sewer. In this case the indemnity insurance policy covers these costs.
- Adverse Possession: sometimes land is sold with a property with a title that is ‘possessory only’ and there is no evidence in the Land Registry that it is legally part of the property being sold. This can lead to very costly claims of ownership against the title owner that can be protected against with indemnity insurance.
- Access Rights: disputes with neighbours can sometimes lead to them withdrawing property access rights. Indemnity insurance will protect against the costs incurred by pursuing legal action to regain access.
Whilst all of these risks are small, in the event that they do occur they can be incredibly expensive. Home indemnity insurance can give peace of mind to buyers and sellers that they’re covered if one of these scenarios ever occurs.
Who pays for an indemnity policy?
This varies and is generally up for negotiation. Indemnity insurance usually benefits the new owner, and gives them protection, so there is an argument that says the buyer should purchase indemnity insurance. However, if there are issues that are clearly caused by the current owner then there’s an incentive for the seller to purchase indemnity insurance to make it more attractive to a buyer.
It is possible to pass on indemnity insurance that is tied to the property which will protect the new owners, but it’s important to note that there might be an additional premium incurred if the property increases in value.
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How much does indemnity insurance cost?
The cost (or premium) of a home indemnity policy varies and depends on both the value of the property and the extent of the policy coverage. These costs can vary significantly. For example, chancel repair policies are typically very cheap (as cheap as a few pounds) whilst missing certification or planning permission insurance can cost many hundreds, or even thousands of pounds. The typical cost of indemnity insurance is between £30 and £350.
Home indemnity insurance tends to be offered by specialist providers and doesn’t usually feature on comparison websites. So, you might need to do a bit of research and shopping around to find the best deal. Solicitors may charge you a fee for arranging the cover, but unlike most insurance policies, indemnity insurance is a one off fee that provides indefinite cover against future costs.
How do I get an indemnity policy?
To get an indemnity policy you should speak to your conveyancer or solicitor – they are best placed to provide you with the expert advice to proceed. Companies that underwrite these policies don’t tend to deal with the general public due to the expertise that is required to understand the detail and implications of these products. Usually your conveyancing solicitor will let you know if they think it’s necessary for you to take out indemnity insurance as a part of their recommendation.
Do I need home indemnity insurance?
Home indemnity insurance can be a cheap way to protect buyers and sellers against future liabilities. Home indemnity insurance policies can also speed up sales that may otherwise be delayed due to missing paperwork or regulations. They’re also often insisted upon by the solicitor of the buyer or seller in order to progress the sale. Another benefit of indemnity insurance is that the policy lasts until you decide to sell the house, and can even be transferred, so many buyers and sellers see the one off payment as worthwhile to provide lasting peace of mind.
Indemnity insurance covers such a wide range of issues and potential complications that it can be tricky to know which insurance you should take out to best cater to your situation. This is why we would always recommend engaging with your solicitor or mortgage broker to obtain expert advice on the best policy for you. If you do decide to ask your solicitor to arrange indemnity insurance on your behalf, always make sure it is with an ‘A’ rated insurer.
Indemnity insurance should be used as a last resort to give protection against a problem that can’t be easily fixed otherwise, so it’s worthwhile making sure there isn’t a free or cheap solution to the underlying issue before forking out for indemnity insurance.
All in all, indemnity insurance provides you with peace of mind when buying or selling your property. If you’d like another, stress free, way to sell your property, SmoothSale can buy your property for cash in as little as 7 days or work to a timescale that suits your onward plans. Get in touch or Get a Free Cash Offer today!
Is Home Indemnity Insurance Mandatory When Selling a House?
Yes, in many jurisdictions, Home Indemnity Insurance is mandatory when selling a house. It protects both parties involved in the transaction.
What Structural Defects Does Home Indemnity Insurance Cover?
Home Indemnity Insurance typically covers structural defects, incomplete work, and issues that arise post-sale. However, specifics may vary, so it’s essential to review your policy.
Can I Transfer Home Indemnity Insurance to the Buyer?
No, Home Indemnity Insurance is not transferable. The buyer needs to secure a new policy for their protection.
How Does Home Indemnity Insurance Impact the Selling Price?
While it adds a layer of security, Home Indemnity Insurance usually doesn’t significantly impact the selling price. It’s a relatively small investment for a smooth transaction.
Are DIY Repairs Covered by Home Indemnity Insurance?
DIY repairs may not be covered, as the insurance typically applies to professional workmanship. Always consult your policy for specific details.
What Happens If a Claim Is Filed?
If a claim is filed, the insurance provider will investigate and determine if the issue falls within the policy’s coverage. If approved, necessary repairs or compensation will be provided.