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What Is Indemnity Insurance When Selling a House?

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Has your solicitor told you to get indemnity insurance when selling a house?

Are you considering putting your house on the market or already in the process of selling? If so, you may have been advised to purchase home indemnity insurance.

This is a term that is unique to the property industry, and you might be wondering if you need it.

This article will explain what indemnity insurance is, what it covers, how much it costs, and if you need it.

You will have all the information you need to make an informed decision by the end.

Table of Contents

What is an indemnity policy? 

Home indemnity insurance is a type of insurance that protects sellers during the conveyancing process and offers protection to buyers against potential problems arising in future after their purchase.  It is a one-time payment, and the coverage is long-lasting.

When a buyer purchases a property without complete building certifications, conveyancing solicitors may suggest taking out an indemnity policy.

This policy will safeguard the buyer against any future losses or claims that may arise due to incomplete documentation.  It will only kick in if the council decide to issue an enforcement notice.

Indemnity insurance can also cover buyers against any devaluation of the property due to defects such as subsidence.

This type of insurance typically protects both the mortgage lender and the buyer from any financial losses that could be incurred. Although these issues are rare, indemnity insurance provides peace of mind in the event of a problem.

But as always, check the exclusions.

Types of Indemnity Insurance

When selling a house, indemnity insurance can help protect against risks and liabilities.

Here are some of the most common types of indemnity insurance:

  • Title indemnity insurance protects any issues that may arise related to the title of the property. This includes not having the appropriate planning permission or building regulation approval for any alterations or extensions made to the property.
  • Chancel repair indemnity insurance is a form of insurance that covers any liabilities related to repairs that may be needed for the local church’s chancel, which is the area around the altar. Having this type of insurance gives both the seller and the buyer peace of mind by protecting them from unexpected repair costs.
  • Restrictive covenant indemnity insurance provides coverage for any potential breaches of restrictive covenants. These are legal agreements that impose restrictions on how the property can be used or developed. This form of insurance safeguards both the seller and the buyer from possible legal claims and liabilities associated with restrictive covenants.
  • Lack of building regulations indemnity insurance offers protection for any issues that may arise from building works that must comply with building regulations. This includes meeting safety and quality standards. 
  • Search indemnity insurance covers potential problems due to the absence or inaccuracy of property searches. These searches provide information about the property’s status. It supplies cover for the seller and the buyer against any potential issues related to property searches.

Remember each form of indemnity insurance may have varying terms, conditions, and coverage limits. Therefore, it is essential to carefully analyse and compare policies from reliable insurance underwriters to ensure the insurance meets your needs and expectations.

Should You Have Indemnity Insurance When Selling A House
Indemnity insurance can also cover buyers against any devaluation of the property due to defects such as subsidence.

What does an indemnity policy cover? 

It can depend on the policy, but home indemnity insurance usually covers a range of risks, such as missing particulars or building regulation certification and planning permission issues. We’ve compiled a list of the most common indemnity policies here:

  1. Planning Permission: If building work is done without evidence of planning permission, indemnity insurance can cover any costs that may arise due to claims from neighbours or the council.
  2. Building Regulations: This type of policy covers the costs that may occur if unregulated work needs to be removed, corrected, or altered.
  3. Restrictive Covenants: Sometimes, property titles contain restrictions, like not being able to build extensions. If costs are faced due to a breach of these restrictions, an indemnity policy can protect against both loss of property value and legal expenses.
  1. Chancel Repair: If your property is in a parochial church council boundary, you could be liable for church repair costs. This type of policy can guard against these costs.
  1. Insolvency: If you have purchased a property with a friend who is declared bankrupt, creditors may try to make a claim on your property. An indemnity policy can protect against any costs that come with this.
  1. Missing Build-over Agreement: If a property is built within three meters of a sewer without a build-over agreement from the water authority, costs may be incurred to access the sewer. An indemnity insurance policy can cover these costs.
  2. Adverse Possession: If land is sold without evidence in the Land Registry that it is legally part of the property, costly claims of ownership can be made against the title owner. An indemnity policy can protect against these costs.
  3. Access Rights: Disputes with neighbours can result in them taking away access rights to a property. Indemnity insurance will cover the costs of taking legal action to regain access.

Though these risks are small, they can be expensive if they do occur. Home indemnity insurance can give buyers and sellers peace of mind that they are covered if such a scenario does arise.

If you are already aware of a boundary dispute or a disagreement over a party wall, then you won’t be able to take out indemnity insurance.

Who pays for an indemnity policy? 

Indemnity insurance usually benefits the buyer, providing them with protection. Therefore, it could be argued that the buyer should purchase the insurance.

On the other hand, if the current owner is responsible for any issues, it would be beneficial for the seller to purchase indemnity insurance to make the property more attractive to a buyer.

It is possible to include indemnity insurance tied to the property, which will protect the new owners. However, there may be an additional premium if the value of the property increases.

How much does indemnity insurance cost? 

The cost of a home indemnity policy can vary significantly depending on the value of the property and the extent of the cover.

Chancel repair policies are usually quite affordable (as cheap as a few pounds) while missing certification or planning permission insurance can be more expensive. 

Sometimes costing hundreds or even thousands of pounds.  If searches reveal that planning permission wasn’t granted, you won’t be able to insure against that.

Most home indemnity policies are typically priced between £30 and £350.

Some solicitors may charge a fee for arranging the cover, but indemnity insurance is a one-time fee that provides long-term protection against any future costs.

How do I get an indemnity policy 
Your solicitor can tell you if you need to take out indemnity insurance based on the situation.

How do I get an indemnity policy? 

If you need an indemnity policy, your best bet is to talk to your solicitor. They are knowledgeable about these products and can provide the right advice.

Companies that provide indemnity insurance usually don’t work with the general public because of the complexity of these policies. Your solicitor can tell you if you need to take out indemnity insurance based on the situation.

Do I need home indemnity insurance? 

Home indemnity insurance can be a cost-effective way to protect buyers and sellers from future liabilities. It can also expedite sales that could otherwise be delayed due to missing paperwork or regulations.

Naturally, the solicitors of the buyer or seller may insist on it in order to progress the sale. The policy is valid until the house is sold, and can even be transferred, thus making the one-time payment worthwhile for long-term peace of mind.

It can be difficult to decide which insurance to take out to suit your situation, as indemnity insurance covers a wide range of issues and potential complications.

Therefore, it is recommended to consult with your solicitor. If you opt to have your solicitor arrange the indemnity insurance, ensure it is with an ‘A’ rated insurer.

Before paying for indemnity insurance, consider if there is a free or inexpensive solution to the underlying issue. It should only be used as a last resort to provide protection against a problem that cannot be easily fixed.

Can you pass on an existing policy to a new owner?

Yes, you may have purchased indemnity insurance linked to the property. This means you can pass on the benefit of the coverage to new owners.

If the value of the property increases, you may need to pay an additional premium to extend the coverage. There is no cost for transferring the coverage to the new owner.

Can you invalidate indemnity insurance
Be wary of whom you share this information with, as it is a common stipulation in insurance policies that disclosing the problem to a third party will render the policy void.

Can you invalidate indemnity insurance?

Have you taken out an indemnity insurance policy to protect yourself from any issues regarding your property?

Be wary of whom you share this information with, as it is a common stipulation in insurance policies that disclosing the problem to a third party will render the policy void.

For instance, if you have obtained an insurance policy to cover you for a building alteration that does not have planning permission, then applying for retrospective planning permission would make your insurance invalid.

Who do I speak to about indemnity insurance?

Speak to your solicitor about whether this type of policy can give you the necessary protection to go ahead with the move.

Your solicitor may contact you if something arises from the building survey or if the seller can’t provide specific paperwork or certificates.

Reasons for Purchasing Indemnity Insurance

Indemnity insurance can provide various benefits for the sale of a property.

  • It can offer financial protection in case of legal claims or liabilities, such as a breach of restrictive covenant or lack of planning permission.
  • It can also help address issues which may arise during the conveyancing process, providing both the seller and the buyer peace of mind.
  • Mortgage lenders may require indemnity insurance to mitigate risks associated with the property’s title.

However, it is important to review the policy terms, conditions, and coverage limits to ensure the coverage meets your specific needs.

Benefits of indemnity insurance
Indemnity insurance can offer a practical solution, providing financial coverage for potential risks without the need for costly rectification measures.

Benefits of Indemnity Insurance

Indemnity insurance can be a great asset for buyers and sellers when selling a home. Here are some of the advantages it can provide:

  1. A quick and cost-effective solution to potential problems: Indemnity insurance can be a practical and efficient way to address any title issues, planning history, building regulations compliance, restrictive covenants, or other legal liabilities connected to the property.
  2. Protection for the seller’s investment: As a seller, you may have put a lot of time, effort, and money into the property. Indemnity insurance can safeguard your investment by providing financial coverage in the event of legal claims or liabilities arising during or after the sale.
  3. Reassurance for the buyer and facilitating a smoother transaction: Indemnity insurance can offer the buyer more confidence by providing protection against any potential risks connected to the property. This can help build trust between the buyer and seller, making it more likely that the transaction will move forward. 
  4. A solution when rectifying the issue directly may be difficult or expensive: In some cases, rectifying a potential issue with the property may be difficult or costly.

For instance, if you need to gain planning permission for past alterations, remove a restrictive covenant, or get building regulations approval, then this may involve lengthy legal procedures or significant expenses.

Indemnity insurance can offer a practical solution, providing financial coverage for potential risks without the need for costly rectification measures.

Process of Obtaining Indemnity Insurance

  • Identifying the specific risk or issue that needs to be covered is the first step in obtaining indemnity insurance. It’s important to understand the nature and extent of the risk or issue in order to ensure that the policy provides adequate coverage.
  • It’s recommended to obtain advice from an experienced insurance broker specialising in indemnity insurance to assess the risks and requirements of the property and recommend appropriate policies.
  • Quotes should be requested from multiple insurance providers that offer indemnity insurance policies in the UK, and the terms, coverage, and premiums of different policies should be compared.
  • Once the most suitable policy has been selected, the application should be submitted, and the insurance premium paid to secure the coverage.
  • Finally, the policy details should be provided to the solicitors involved in the sale process. Budgeting for the insurance premium should be taken into consideration as part of the overall cost of selling the property.

Indemnity insurance provides protection for the seller’s investment, facilitates a smooth transaction, and offers a solution when it is difficult or expensive to resolve issues directly.

When selecting the right indemnity insurance policy, it is important to consider the insurance provider’s reputation, the coverage and limits of the policy, the exclusions and limitations, the cost of the insurance premium, the timing of obtaining the insurance, and any legal requirements or advice from professionals. Making the right decision requires careful consideration of all these factors.

Sell to Us!

Indemnity insurance gives you peace of mind when you are selling your property. If you’d like a hassle-free way to sell, Property Saviour can buy your property for cash quickly, in as little as 7 days. We can also work around your plans, so get in touch today!

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