Indemnity Insurance On Property | House Selling Guide

When buying or selling a house, you may have encountered the term ‘indemnity insurance’, but not fully understood what it is, or if you need it.

In this article, we’ll explore what it is, the common policies to look out for, how much it costs and more to help your sale process run as smooth as possible.

Key takeaways

A lower cost indemnity insurance policy can protect both sellers and buyers, in most cases preventing a property sale from falling through. In most instances, it’s in the best interest of the buyer to have this policy in place.

From planning permission protection to protecting those who live in the boundary of churches with faulty roofs, indemnity insurance protects a variety of homeowners. It’s important that you do your research to see which type of policy you need.

Always seek legal advice before taking our indemnity insurance. At Good Move, we have experienced surveying professionals in our team who will be able to help, while securing a quick property sale.

In the guide:

What is an indemnity policy?

An insurance indemnity policy is used in conveyancing transactions to offer sellers protection if there is a defect with their property that could result in legal action. Both buyers and sellers can pay for an indemnity policy. Often, house sellers take out an indemnity policy to cover the cost implications of the buyer making a claim against their property. The insurance requires a one-off payment and is something that lasts forever.

House buyers take out an insurance indemnity policy as an alternative to rectifying a property defect. Rather than asking the seller to fix the problem, buyers can take out a policy as a form of protection. If they are otherwise satisfied with the property and want to make sure their mortgage application goes through smoothly, this is a good option.

Having an indemnity policy in place would cover the buyer and mortgage lender in the event of any loss of value on the property because of substantial defects. The issues covered by the policy typically have a very low risk of diminishing a property’s value, but in the instance that they did, it would be a significant loss.

What does indemnity insurance cover?

Insurance policies are used to cover a wide range of risks and serious problems. This includes things such as missing building regulation certificates, incomplete installation certificates or planning permission issues. Here is a list of the most common indemnity insurance problems:

• Planning permission: This policy covers instances where building work has been carried out, by you or a previous owner, but there’s no evidence that planning permission was obtained or complied with.
• Building regulations: If work has been done on your property but the paperwork is missing or incomplete, having this policy covers the cost of any works that may be required to alter, correct or remove the unregulated work.
• Restrictive covenant: This policy is required when the title of the property contains a restrictive covenant, such as restrictions on building an extension, which has been breached. It covers the cost of any legal expenses and loss in the property value incurred in defending an attempt to enforce the covenant.
• Chancel repair liability: This policy protects homeowners who live within the boundaries of a parochial church council against having to pay towards repairing the church.
• Absence of easement: This policy covers access rights. For example, your drains can only be accessed from your neighbours’ gardens, the cover protects you against legal costs if the neighbour prevents you from having access.
• Missing particulars: This policy is taken out when the deeds or documents to a single residential property are mentioned in the Land Registry entries but have not been supplied and may contain unknown or unclarified matters.
• Absence of build over agreement: This policy is specifically designed for the situation where a property or part of a property has been erected over or within three metres of a sewer without a build-over agreement from the appropriate water authority.
• Adverse possession: Adverse possession means that the owner of the property has only possessory title, as they have claimed ownership of some land but do not have the necessary evidence to satisfy the Land Registry that they are the legal owners. Insurance will cover the buyer against any financial loss if someone attempts to claim the land from them.

The risks covered by indemnity insurance tend to be small, otherwise you would not be able to take out a policy against them. Although the seller is responsible for arranging the insurance and taking on the cost, if they refuse, the buyer has no choice but to pay for the premium as their mortgage lender requires it to cover any potential loss.

To learn about other types of conveyancing insurance that may be relevant during the sales process, please read our dedicated article.

How much will an indemnity policy cost?

The premiums for indemnity insurance policies are not excessively expensive and are calculated on a sliding scale, depending on the value of the property and not on the level of risk.

Building regulation indemnity policy cost
Indemnity insurance will range from as little as £20 to as much as £500, or potentially even more if you require a non-standard policy. Insurance for a lack of planning permission and building regulations will set you back between £200 and £500, while insurance against chancel repairs liability costs between £50 and £200.

Top tip: Always do you research and look at different insurance providers as what may look like a good deal at first may not always be that way.

Can I negotiate my indemnity policy?
It’s unlikely that you will be able to negotiate the as indemnity insurance is only offered via specialist providers. In addition, some solicitors will charge a fee for arranging the cover, so make sure to receive the whole house indemnity insurance quote at once to avoid any hidden costs. Unlike most insurance policies that have an annual premium, indemnity insurance is a one-off payment that will cover future owners of the property as well – so it’s a worthwhile investment. As a result, most sellers would rather pay the premium of a maximum cost of £500 rather than see an expensive sale fall through.

How important is indemnity insurance?

Indemnity policies are rarely required to pay out, so they are a relatively cheap way to protect a buyer or seller from any future liability, as well as reducing any delay to the sale. If you’re selling a property, you may find that the buyer’s solicitors and mortgage lender insist on an insurance indemnity policy being secured before the sale can go ahead. If you decide you need insurance, your conveyancing solicitor will be able to help you find a specialist provider.

It will be up to you and the other party in the property transaction to decide who pays for the policy. Buyers sometimes pay as they’re the ones who will benefit from the policy, but the sellers can also pay as it’s their lack of paperwork, building permission or policy that is hindering the sale.

All indemnity policies include a clause that the insurance will be invalidated if the existence of the problem is revealed to third parties. If you took out a policy for an extension having been built without planning permission and then sought to obtain retrospective planning permission, you would invalidate the insurance so it’s important to discuss your future plans for the property with your conveyancer to figure out if indemnity insurance is right for you.

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