Indemnity insurance is a phrase you might hear from your solicitor when buying a property.
It’s a form of protection many take out to cover them in certain situations.
But, what is indemnity insurance? Do you need it? Let’s take a closer look at the ins and outs to help you decide.
Indemnity insurance meaning
It’s a contractual agreement where one party agrees to compensate potential losses or damages sustained by the other.
Instead of trying to fix a particular problem, you take out this insurance to cover the cost of the losses it may cause.
When will you be covered?
Indemnity insurance covers a variety of different scenarios, usually a legal defect with the property that would be difficult or time consuming to fix.
1. Lack of planning permission
Has the previous owner carried out major works without applying for planning permission? Indemnity insurance protects you in these circumstances, for example the risk of local authority enforcement.
Remember, if you take out cover to protect you from a building alteration that doesn’t have the necessary permission, you need to take care not to invalidate your insurance. Retrospective applications could do exactly that.
2. Restrictive covenants
Restrictive covenants are certain conditions that apply restrictions on a property, for example major renovations or building work. If a previous owner has breached one of these, you can take out insurance to protect you if there are any future problems.
3. Building regulations
Buying a property and the seller can’t produce the necessary building regulation certificates? Your solicitor may advise you to take out indemnity insurance as a safety net.
If you don’t have the necessary paperwork, you could be pursued by a local authority.
Here, it’s essential all hopeful home buyers get a property survey. Tell the surveyor about the missing certificates and ensure they check that your potential new home is structurally sound. There are many different types of survey you can get, varying in depth.
We can connect you with the right people to give you peace of mind. Get survey quotes for free below.
4. No FENSA certificates
When new windows and doors are fitted, a FENSA certificate should be issued. This is a legal requirement, as it ensures they meet the necessary specifications.
Without this, you could face legal problems later on down the line.
5. Chancel repairs
Is the property near a church? Chancel repair liability can make landowners responsible for paying for the cost of any potential repairs to the church building.
6. No boiler installation certificates
Can the seller not prove an installation certificate for the boiler? You may both choose to take out indemnity insurance in this scenario.
However, as the buyer, you should also consider getting a gas safety certificate to ensure the boiler is safe. The insurance cover itself won’t guarantee this.
7. Right of easement
Do you need to travel over someone else’s land to reach your property? Has this not been granted? Indemnity insurance can protect you from this potential loss of value.
You may need to take out the cover if someone gives you money for your deposit. This is because if they are ever declared bankrupt, their creditors could claim against your property.
Who is covered?
This insurance covers those buying the property and those who may be involved in another house sale later on. You can pass the policy on to later buyers as the cover is tied to the property itself. This differs from home buyers’ protection insurance, for example.
Despite this, if the value of the house increases, there might be an additional premium.
Your mortgage lender will also be covered by the policy.
How much is indemnity insurance?
When you buy indemnity insurance, the price varies depending on a variety of circumstances. As a general rule, it can be as low as £20. However, it can also rise to over £300.
For example, missing FENSA certificates could cost relatively little to cover. Meanwhile, missing building work certificates might be much higher.
Unlike other insurance when buying a house, there’s no ‘searching for a better price’ – it will be set for you.
This is because the cover must come from a specialist provider, therefore it’s your solicitor who will find out the price for you.
Who should pay for the cover?
This can be a source of disagreement between those buying or selling.
Buyers often feel that, as the seller can’t produce the necessary paperwork, they should be the ones to pay. However, the counter argument is that buyers are the ones who benefit, so they should cover the cost.
However, during negotiations, if the house sale is on the line, sellers may be persuaded to foot the bill. In other cases, splitting the cost can be a good solution.
Do you need indemnity insurance?
If you’re advised to take out the cover to protect you against potential legal costs, it’s always recommended to do your own research.
It’s worth finding out if there’s an alternative, as insurance should be seen as a last resort. Before putting your hand in your pocket, is there a free solution to fix the problem?
Ensure you find out before taking any drastic action.
However, with rising house prices and difficulties within the market, many buyers don’t want to take any risks. In the case of missing certificates, many would rather pay upfront than face legal action later on.
You should assess your individual situation closely before considering paying for cover. In some cases, it’s absolutely necessary. But, you should be certain. Your solicitor should be able to advise you here.
Ensure you know the facts
Buying a house is likely the biggest financial transaction any of us will face in our lifetime. Therefore, it’s essential you get all the necessary facts.
What’s the local area like? How are the nearby schools? Are there any planning applications that could affect your property?
Phil Spencer’s property report can gather all this information for you and more. It pulls together everything you need to know before you buy. Get yours below.
Get a good solicitor
To help you navigate your house buying journey, it’s essential to find a solicitor. The conveyancing process can be a complicated one, full of paperwork and legal jargon. It’s vital you find the right person to assist you every step of the way.
Need help finding them? We can connect you with a trusted, professional conveyancing solicitor. Get free conveyancing quotes below.