Indemnity Insurance: What You Need to Know When Buying or Selling Property in UK

Indemnity insurance is a policy that protects you against the risk of financial losses resulting from legal defects or problems with your property. Conveyancing solicitors usually recommend it in case future liability is possible to grow or when a mortgage lender refuses funds. In this article, we will discuss what indemnity insurance is about, its coverage, its cost, and whether you need one or not.

What is indemnity insurance?

Indemnity insurance is a policy that provides compensation for legal fees and possible damages in lawsuits. It mainly covers professionals against financial loss arising from errors, negligence, or omissions in their work.

It is also pertinent to the buying and selling of a house, in which an indemnity insurance policy will cover a legal defect in the property that either cannot be resolved or would cost too much time, money, or both.

For xample, if you are purchasing a property and the seller cannot provide building regulation certificate or an indemnity policy to cover future costs of any claims your local authority may pursue because it has no certificate. 

On the other hand, indemnity insurance will not pay for repairs or replacement of something. Therefore, it is always necessary to have the installations checked and property surveyed by a professional contractor when you are buying.

What does indemnity insurance cover?

A defective property insurance policy protects against a legal flaw in the property that cannot be remedied or would require an enormous amount of time and money to fix. So, instead of trying to solve the problem, you just remove insurance so that it does not become a very expensive bill that you may have to pay later. These policies cover most of the items that are low risk but would be very expensive if they came to pass.

Indemnity insurance policies that are commonly bought during the sale or purchase of a house include:

Pre-existing building work or extensions

This could help the buyer avoid any costs that might arise if it is found that no permission was obtained and work was not done. In some instances, you may only need to make an application for retrospective planning permission.

In other cases, you might be forced to discard the extension at your expense. If you have an indemnity insurance policy, it will not only pay for the removal of the extension but should also compensate you for any loss in value that may result from removing such an addition.

Chancel repair liability

Living in close proximity to a local parish church may entail financial responsibility for contributing to repairs of the church building. To safeguard property owners from this potential expense, chancel repair liability indemnity insurance provides protection.

Right of access indemnity insurance

In cases where accessing certain parts of your property or utilities requires crossing your neighbor’s property, a right of access policy ensures protection. By securing an indemnity insurance policy, you are shielded from legal expenses if your neighbour attempts to block your access.

Failed environmental indemnity insurance

This type of insurance shields property owners from the financial burden of remediation costs. For instance, if an environmental agency mandates property owners to address an environmental issue, the insurance company assumes responsibility for covering these expenses instead of the property owner.

How much does indemnity insurance cost?

The cost of indemnity insurance depends on the policy type, the property value, and the level of risk involved. Generally, the premiums are relatively low, ranging from £20 to £3003.

The policy is usually paid as a one-off fee and lasts for the property’s lifetime. The policy can also be passed on to subsequent owners, so you do not have to renew it every time you sell or buy.

Do I need indemnity insurance?

Indemnity insurance is not a legal requirement but may be advisable in some situations. If your conveyancing solicitor suggests taking out an indemnity policy, you should weigh the pros and cons.

Some of the benefits of indemnity insurance are:

  • It can speed up the conveyancing process and avoid delays
  •  It can provide peace of mind and security for the future
  •  It can satisfy the mortgage lender’s requirements and avoid losing the loan
  •  It can be cheaper and easier than resolving the legal defect

Some of the drawbacks of indemnity insurance are:

  • It does not fix the underlying problem or guarantee that it will not arise again
  •  It does not cover the cost of replacing or repairing anything
  •  It may become invalid if you inform the relevant authority of the legal defect or make any changes to the property
  •  It may not cover the full amount of the claim or damages

Finally, whether to purchase indemnity insurance is a matter of personal choice and the conveyancing solicitor. It is always recommended to read the policy carefully and know what it includes or excludes. You should also compare the policy’s price to what it would cost you if a legal defect was resolved. If you have any doubts or queries, it is advisable to seek professional advice before signing anything.

Conclusion

Indemnity insurance is a type of policy that can cover you against financial losses arising from legal defects or problems with your property. It is usually advised by conveyancing solicitors when there are risks of future liabilities or a mortgage lender withholding the funds. Indemnity insurance may include various situations, including pre-existing building work for chancel repair liability right of access and failed environmental.

The cost of an indemnity insurance policy is based on the type of plan, value or worthiness and risk involved. Indemnity insurance is not a legal obligation, but it could be wise in certain cases. You should always carefully think about the advantages and disadvantages of taking on an indemnity policy, as well as take professional help from a legal expert before committing to anything.

Questions

What is indemnity insurance? 

Indemnity insurance is a policy that ensures the buyer and seller of property against any losses incurred due to legal defects with the property, like missing documents, environmental hazards or planning permission problems.

Who needs indemnity insurance? 

Indemnity insurance is recommended by the conveyancing solicitor if they identify a problem with the property that cannot easily be managed or will delay the completion of transactions. The policy can be taken out by the buyer or seller, depending on the circumstances and terms of the agreement.

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