Buying a home is undeniably one of the biggest financial decisions you’ll make in your life, and it’s not entirely without risks. To mitigate the risks inherent in the home buying process, insurance companies offer property indemnity insurance.
But what exactly is indemnity insurance? What does it cover? And do you need it when purchasing property? We’ll address all these queries in this blog. But first, let us break the jargon and look at what indemnity insurance is.
The home buying process is complex and full of many surprises and frustrations.
Sometimes, minor defects might show up, delaying the sales process. Home inspection and conveyancing searches might also reveal critical issues that may need immediate attention or even highlight potential future problems.
This is where indemnity insurance comes in. It offers the buyer protection against the costs of fixing many of the issues identified through conveyancing searches.
For example, if you’re buying a home and the seller can’t provide a building regulation certificate, an indemnity insurance policy can guard against potential future costs.
The policy will cover any legal costs incurred if the local authority pursues a claim because you don’t have the certificate. For a one-off payment, you secure a policy that covers the cost implications of a third party making a claim against the property you intend to buy.
However, it’s important to note that indemnity insurance doesn’t cover the costs of repairing or replacing equipment on the property.
Indemnity insurance covers different types of risks inherent in the property buying process. These include planning permission problems, missing building regulation documents, incomplete installation certificates, and more.
Here are some of the popular policies for indemnity insurance.
A restrictive covenant is a condition that restricts, prevents, limits, or prohibits the actions of someone named in an enforceable agreement. It’s a provision in real property that limits the grantee’s use of the property.
For instance, there could be restrictions on exterior constructions, permissible pets, or even limitations on home color.
If the previous property owner had already breached the covenant, taking out indemnity insurance is advisable. It will protect you should the breach cause problems in the future.
If the previous owner made alterations to the building without planning permission, you could take out indemnity insurance.
Indemnity insurance can also come in handy if the alterations were made, but there’s no proof that they were completed within the permitted development rights of the time. This policy would cover the risk of local authority enforcement.
Building Regulations Insurance
If there is missing or incomplete paperwork for building regulations, indemnity insurance will cover any costs incurred should there be a need to alter, correct, or remove any unregulated work.
Indemnity Insurance for Boiler
When selling your property, you should have an installation certificate or gas safety certificate. If you’re selling your house and don’t have these certificates, an indemnity policy will cover this, giving buyer assurance.
If you’re buying, it’s crucial to ensure the certificate exists and that the boiler is safe. Don’t just accept an indemnity policy. Note that the policy will not cover the cost of repairing or replacing the boiler if it’s not functional.
Adverse possession may occur if the property or some of it has a possessory title. Possessory refers to when a title registration was initiated, but the applicant didn’t have the correct documents when registering it or didn’t meet all the requirements for the absolute title.
If a portion of the land has come with a possessory title, it can incur you costs in the future if someone claims the land from the ‘owner.’ This policy will cover financial loss should someone else claim the title.
Indemnity insurance protects both the buyer and the seller from future liability. It can also eliminate delays in the sales process should some of the paperwork go missing. For these reasons, many solicitors insist on purchasing indemnity insurance before a sale goes through.
But do you actually need it?
Indemnity insurance should only be purchased when there are defects or missing particulars that the solicitor cannot resolve. That said, indemnity insurance provides a quicker and cheaper way of resolving defects.
However, resolving issues that have arisen should take precedence before buying property. That’s because indemnity insurance won’t cover repair costs of faulty equipment.
So, where does that leave us?
This policy should only be used as a last resort to provide protection for a problem that can’t be fixed easily. So, make sure there isn’t any free solution to resolving the issue before taking the indemnity insurance route.
How Much Does It Cost?
Indemnity insurance premiums aren’t expensive and are calculated on a sliding scale, depending on the value of the property rather than the level of risk.
Ideally, most policies cost a few hundred pounds. It’s a one-off payment—no recurring monthly or yearly payments.
In most cases, sellers pay the policy to salvage a sale. But if the seller isn’t willing to pay, you’ll have to agree on who to bear the costs. You could also pull out of the sale.
Indemnity insurance is a type of insurance policy that offers the buyer protection against the costs of fixing many issues identified through conveyancing searches.
This policy covers different risks, ranging from restrictive covenant problems to planning permission, building regulations, and adverse possession. While indemnity insurance provides a quicker and cheaper way of resolving defects, it should only be used as a last resort—when there isn’t any free solution to solving the problem.
Got any questions about indemnity insurance and what it covers? Not sure whether to take out indemnity insurance or not? Contact us today at 0151 601 3003 or shoot us a quick email at email@example.com, and we’ll get back to you.