Getting insurance might not be something you think about when selling a home. After all, it’s usually reserved for other aspects of a property, like contents insurance and home emergency cover. But there is one little thing called indemnity insurance, and it’s something you should consider. Here, we explore the role of indemnity insurance in property transactions so you’re in the know.
What is indemnity insurance?
Indemnity insurance is a type of policy that offers protection to homeowners in case of certain circumstances that may lead to financial loss. When selling a house, an indemnity policy can protect you from any future repercussions and is often recommended by a solicitor if they feel there may be a danger of future liability. Common indemnity insurance policies purchased when selling a house can cover the following:
- Planning permission – if paperwork for any building work is absent or incomplete.
- Building regulations – if related paperwork is sparse or missing.
- Restrictive covenant policy – these can cover a number of different areas. Some may dictate what you can do with your front lawn. Others might dictate that you can only sell your property to a local resident. An indemnity insurance policy can protect you if it is found that you have inadvertently broken a restrictive covenant.
- Environmental factors: Sometimes searches come back highlighting critical issues such as contaminated land or flood risks. You might need to get cover to protect against these.
What do indemnity insurance policies cover?
Pre-existing building work or extensions
This can protect a buyer from any costs that may arise if it’s found that the work was carried out without the necessary permissions. In some cases, you may simply be required to apply for planning permission retrospectively. In other circumstances, you may be required to remove the extension (at your own cost). If you have an indemnity insurance policy in place, it won’t only cover the cost of removing the extension; it should also compensate you for any decrease in the value of your property as a result of removing it.
Chancel repair liability
If your home is close to a local parish church, you may be called upon to fund church building repairs. Chancel repair liability indemnity insurance will protect property owners from this cost.
Right of access indemnity insurance
A right of access policy protects you if, for example, part of your property or utilities servicing your home can only be reached by going across your neighbour’s property. With an indemnity insurance policy in place, you will be protected from legal costs if your neighbour attempts to prevent you from having access.
Failed environmental indemnity insurance
This insurance protects the owner from costs of remediation i.e. if an environmental agency orders the property owners to take financial responsibility for resolving an environmental issue, the insurance company would then pay these costs instead of the property owner.
How does indemnity insurance work?
Initiating an indemnity insurance policy is generally a simple and easy-to-understand process. The policy is usually purchased with a one-off premium during the time of the property sale. The one-time payment typically provides coverage for the lifetime of the property, ensuring long-term protection against potential future liabilities.
One key characteristic of indemnity insurance that differentiates it from other types of insurance is the non-disclosure agreement, which is an inherent part of the policy. The agreement essentially means the insurer won’t investigate the potential issue at hand prior to issuing the policy. In other words, rather than digging into the details upfront, the insurance company provides a form of ‘blind’ coverage.
Moreover, the buyer is also restricted from contacting the local council or any other third-party entities about the issue. This is particularly important, as it minimises the risk of drawing attention to the problem and inadvertently escalating it.
Therefore, while indemnity insurance provides a safety net against potential issues, it also demands a degree of silence and discretion from the policyholder. By preventing both proactive investigation by the insurer and discussion by the buyer, indemnity insurance serves to ‘insulate’ the issue, providing protection while avoiding unnecessary attention or complications.
In the context of property sales, this can be particularly beneficial, allowing transactions to proceed smoothly without the potential delays that could result from drawn-out investigations or disputes about potential liabilities. As a result, indemnity insurance can be helpful as it provides peace of mind and facilitates smoother, more efficient property transactions.
Do you need indemnity insurance when buying a house?
The decision to take out indemnity insurance when buying your house is heavily dependent on the unique circumstances and characteristics of your property. In situations where there are unresolved legal issues, uncertainties about building regulations or permissions, or potential risks that could lead to future disputes or complications, it becomes increasingly necessary to consider indemnity insurance.
Your solicitor or conveyancer, who is familiar with the legal intricacies of property sales, may advise you to take out indemnity insurance as a proactive measure. They can identify potential areas of concern during the conveyancing process, such as missing paperwork, breaches of restrictive covenants or other issues that might create problems in the future.
Without indemnity insurance, you expose yourself to the risk of financial losses, legal disputes, or other complications further down the line. This could arise from buyers seeking compensation for undisclosed issues, local authorities enforcing regulations, or even neighbours challenging boundaries or rights of access.
How much does indemnity insurance cost?
The cost of indemnity insurance can vary depending on the risk it’s covering. Premiums for common types of indemnity insurance can range from a few hundred to a few thousand pounds. It’s typically the buyer who pays for indemnity insurance, but this can sometimes be negotiated as part of the property sale agreement.
How to obtain indemnity insurance
If you decide to take out indemnity insurance, your solicitor or conveyancer can help you find a suitable policy. It’s also a good idea to compare quotes from different insurers to ensure you’re getting the best deal. Remember, choosing a reliable insurer is just as important as finding the right price.
What if I don’t want to get indemnity insurance?
There are no legal requirements saying you must get indemnity insurance, and the choice is entirely up to you. If the solicitor suggests you should get it, then it’s something worth thinking about. You might decide to do your own independent investigation to help confirm whether the perceived issue is really something to be concerned about or not, before taking out a policy.
Indemnity insurance plays an important role in many property transactions, providing a safety net for potential legal issues and can give both the buyer peace of mind. As always, you should seek professional advice to understand the potential risks and protections associated with your property sale. With the right preparation, you can navigate the process of selling your house with confidence.
P.S. If you are thinking of selling a property, you can get a free valuation instantly online here. It takes 10 seconds.