What Is Indemnity insurance?

When you buy a property there is a lot of money involved and a fair amount of risk. There is often a number of things that could go wrong and so there is a range of insurance products such as indemnity insurance to help remove as much stress as possible.

Sometimes issues when buying a property can be identified through the conveyancing or survey process. Indemnity insurance offers protection for the buyer against the costs of fixing many of the problems that might be revealed. For example, a conveyancer may discover that the property seller can’t provide key planning permission documentation relating to an extension they had built. This might cause problems in the future if a neighbour were to challenge the extension, since it would by then be your responsibility as the new owner. With an indemnity insurance policy, you can cover yourself against any loss of value or legal claims that may someday result from this issue.

How does indemnity insurance work?

The idea behind having indemnity insurance is that you take this insurance out instead of fixing the problem, which could result in being more costly if the problems does become an issue.

People may take out indemnity insurance because:

  • Issues that result in missing deeds or land registry documents,
  • If you can only access some of your property through your neighbour’s garden (such as your drains), your policy will cover any legal costs that arise if they try to block your access,
  • Legal costs from a previous owner not seeking permission from the appropriate water authority before carrying out building work,
  • Building regulations not being met during building work, or the relevant paperwork being lost. Your policy will cover the cost of any work needed to correct the issue

How much does indemnity insurance cost?

Indemnity insurance is usually a one-off payment so this could be quite substantial but really depends on the type of cover you are looking for, the circumstances and risks surrounding the issue and the provider your choose. Indemnity insurance can be hard to source so we therefore advise that you speak to a specialist financial adviser or mortgage broker, like ourselves, who should be able to help you find the best deal for your circumstances.

Indemnity insurance benefits whoever owns the property so is usually purchased by the buyer, however the insurance resides with the property, not the owner, so can be passed on to subsequent owners.

Do I need an indemnity insurance policy and how long will it last?

When considering this insurance, the main question you may face is, do I try to fix the problem now or take out indemnity insurance? Time is usually the main factor affecting this because delays in your property purchase can be costly. Getting cover for the problem is much quicker and will protect you in the interim. This type of cover can last indefinitely as it is tied to the property and not the owners and any new owners will continue to be covered. Be aware that if the property significantly increases in price, then the owner may need to pay a one-off additional premium to keep an appropriate level of cover.

Another important fact about this type of cover, is that most policies are invalidated if you reveal the defect to a third party. For example, if you are covered for a lack of planning permission and then subsequently apply for retrospective planning permission for the same building work, it is very likely that you will have invalidated your policy and no longer have any protection against a subsequent legal challenge.

We always advise to speak to your solicitor and mortgage broker to gain advice about whether you need an indemnity insurance policy. If you have any questions around this subject matter, then please get in touch.

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