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When it comes to property transactions, indemnity insurance protects you financially if a legal issue arises with a property after a purchase or sale is complete. Continue reading to find out more.
In this article:
What is indemnity insurance when buying or selling property?
4 min read
When buying or selling a house, your conveyancer may recommend for you get indemnity insurance. Here, we will explain what indemnity insurance is in property transactions, why and when you may need it.
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- Home
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- Conveyancing
- What is indemnity insurance?
What is indemnity insurance?
Indemnity insurance is a specific type of insurance that covers potential legal and compensation costs for claims or lawsuits made due to negligence, errors, or missing information. When buying or selling a property, indemnity insurance specifically relates to your property and covers you against future claims due to missing information or legal defects with the property. The cover itself is for the potential legal costs and compensation come about due to the missing information or legal defects.
Why do you need indemnity insurance?
Although your conveyancer or solicitor will do their best to find out all the information to do with a property, sometimes it isn’t possible. It’s in these cases, where they would recommend for you to take out indemnity insurance in case a legal issue was to arise later down the line, relating to a potential defect or missing information.
What does indemnity insurance cover?
Indemnity insurance could be purchased to insure you against defects or missing information such as:
Missing planning permissions – if the seller cannot provide evidence of something that would require planning permission, such as an extension you should get indemnity insurance, so you are not liable for any fines or legal costs in the future. You may also want to get an additional survey to ensure that it is structurally sound.
Boundary disputes or absent of easement – if there are discrepancies in the property’s boundary or access information an indemnity insurance may help protect you against disputes with neighbours further down the line.
Old or restrictive covenants – in older properties there can be covenants that restrict you from doing certain things with the property. Even if previous owners have breached this covenant, you can still take out indemnity insurance to protect yourself against any liabilities in the future.
Boiler or window installation – when you get things like these installed you will get a certificate to prove they have been installed within their regulations. If these cannot be provided, you may want to get indemnity insurance.
Chancel repairs - when a property is within the medieval parishes of a church it could be liable to help cover the costs of repairs. Indemnity insurance would cover those costs.
No search - if you're buying a house with cash, or buying a property at auction, and you can't, or don't opt to, get all the usual property searches, you can get indemnity insurance to cover you against future losses.
How much does indemnity insurance cost?
Typically, you’d be looking to pay anywhere in between £20 and £300 for an indemnity insurance policy. However, the actual cost will vary depending on the type of issue you want to be covered for and the property’s value. For example, for minor issues you‘ll likely pay less, whereas policies to cover you against planning permission issues are likely be more.
How long does indemnity insurance last for?
When you get indemnity insurance, you just pay a one-off cost which then lasts a lifetime. Indemnity insurance covers the property and not the person, therefore it only ever needs purchasing once. If the property’s value increases, it may need to be reviewed though so that the value you’re covered for also increases.
Indemnity insurance FAQs
Does the buyer or seller pay for the insurance?
It’s usually negotiated between the buyer’s and seller’s solicitors as to who should pay for the indemnity insurance. If it’s a defect caused by the seller, or they haven’t been able to provide certain information, they may be willing to pay. However, if it’s a defect that has been in place for a while, it may fall on the buyer to pay for the insurance, as it will ultimately be their risk going forward. Alternatively, in some cases the buyer and seller may share the cost.
Either way, your conveyancer will help to advise you on the best thing to do for you.
Does indemnity insurance gets passed from seller to buyer?
Yes. Any indemnity insurance purchased is for the property, not for the person. Therefore, if you’re selling a property which already has an indemnity insurance policy, it will transfer to the new owner upon completion. The only caveat is that if the property’s value has increased since the indemnity insurance was bought, there may be an additional premium to pay to increase the cover.
Does indemnity insurance reduce the need for conveyancing searches?
No. Indemnity insurance should only be used as a safety net, rather than a replacement to the conveyancing searches you will get as part of the standard conveyancing process. Indemnity insurance covers legal and compensation costs, however the cost to fix the issue if needed will be on the homeowner, therefore when buying a property, you should be aware of as many potential issues as possible before the sale becomes legally binding.
Is it worth getting indemnity insurance?
Ultimately, this is something only you will be able to answer, depending on what the defect or issue is and how much of a risk it is to you. If you are unsure whether you need indemnity insurance, these are some factors you should consider:
Getting it means that you will always be financially protected against the issue
Your mortgage provider may insist it is needed
Will it make this sale, or a future sale, go through easier?
The upfront cost now vs the potential future costs
Could it be easily resolved without getting the insurance?
The likelihood of this issue being raised in the future
How long does it take to get indemnity insurance?
Unless it is an extremely complicated case, getting the insurance doesn’t usually take very long, just a couple of days.
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