Do I need indemnity insurance when buying a house?

Buying a house is a major investment, and it’s important to take steps to protect that investment. One way to do this is by purchasing indemnity insurance. Arranging Indemnity insurance when buying a house, also known as title insurance, can protect you from financial loss in the event of certain legal issues that may arise with the property. Let’s take a closer look at what indemnity insurance is and when it might be necessary.

What is Indemnity Insurance?

Indemnity insurance is a type of insurance policy that protects you from financial loss if there is a defect in the title of the property you are purchasing. This can include things like undisclosed ownership disputes, or loss of documents.

How Does Indemnity Insurance Work?

If any of these issues arise, your indemnity insurance policy will cover the cost implications of a third party making a claim against any defects with the property you are about to buy. Indemnity insurance will not over the cost to repair or replace something.

What Does Indemnity Insurance Cover?

An indemnity insurance policy covers a legal defect with the property that either can’t be resolved or would be very costly and/or time-consuming to do so.

Who do I Speak to About Indemnity Insurance?

In order to arrange indemnity insurance, contact your conveyancer, although they will often be aware from the building survey if you require indemnity insurance for an issue and will recommend it where necessary. 

• Common Indemnity Policies:

  • Restrictive Covenant Policies – deeds which restrict the use of properties
  • Planning Permission Insurance – where building work was undertaken without required planning permission
  • Indemnity For a Boiler – in the event of a lack of an installation certificate
  • Indemnity For Windows – in the event of a lack of FENSA certificate
  • Other Reasons for Indemnity Insurance
    • Absense of Easement – where someone else’s land is crossed to reach your property
    • Restrictive Covenant –
    • Absent Freeholder – in the event you buy a house with an absent freeholder to protect against claims against unpaid obligations
    • Missing Paperwork
    • Chancel Repairs – where a property is near a church and may be responsible for certain repairs
    • Title Issues
    • Insolvency
    • Late or Missing Property Searchers

Can you Invalidate Indemnity Insurance?

Yes. For example, if you take out a policy for an extension that was built and then apply for retrospective planning permission., the policy will be invalid.

How Much Does Indemnity Insurance Cost?

The cost varies according to the type of policy and level of cover taken out. It can range from as little as £20 to as much as a few hundred pounds. Your conveyancer will be able to help you get quotes for the correct policy. 

Who Pays for Indemnity Insurance?

While there is no set rule, with things like lack of planning permission, the obligation really should sit with the seller. However, it may be in some cases that the new owner is happy to pay the indemnity insurance as the policy will sit with them. This will be agreed upon during the conveyancing process. 

Can You Pass an Existing Policy to a New Owner?

Yes, the insurance policy is linked to the property so you can pass on to any new owners. 

Is it Worth Buying Indemnity Insurance When Buying a House? 

If you are taking out a mortgage to finance your home purchase, your lender may require you to purchase indemnity insurance as a condition of the loan. Even if your lender doesn’t require indemnity insurance, you may still choose to purchase it for added peace of mind. If you are risk-averse and want to protect your investment as much as possible, indemnity insurance may be a smart choice. However, always be sure the policy is needed. For example, if an extension was built without planning permission before the regulations were brought in, you may not require it. Also, always see if the issues can be resolved first, for example, could the vendor get a boiler installation certificate from the installer? If so, this would be a better option than an indemnity policy.

One thing to keep in mind is that purchasing indemnity insurance can help simplify and speed up the conveyancing process, as it can help identify and resolve issues before the sale is completed.

In summary, indemnity insurance can be a valuable investment when purchasing a house, as it can protect you from financial loss in the event of title defects or other legal issues. Whether or not you need indemnity insurance will depend on a variety of factors, including the type of property you are purchasing, your lender’s requirements, and your own risk tolerance. Be sure to discuss your options with your conveyancer to determine the best course of action for your situation.

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If you have any questions, please get in touch with Propertyable today.