Buying a property is a huge financial investment and commitment so you need to ensure you’re protected against future issues. There’s always a risk that something may go wrong during the home-buying process but indemnity insurance covers you when faced with an unexpected legal problem that could potentially be very costly.
At Trinity Finance, we strive to make your property purchase as straightforward and stress-free as possible. As well as arranging your mortgage or other type of property finance, we ensure you’re aware of the issues you may encounter and the financial protection that’s available. Here, we explain how one type of protection – indemnity insurance – safeguards you against future costs.
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What is indemnity insurance?
This type of insurance protects you against a potential legal issue that is flagged up by the survey or during the conveyancing process. This issue relates to a defect with the property that could lead to someone making a claim against you in the future. You may not be able to resolve this issue once it has been identified or it would take a long time or cost a lot of money to fix, potentially jeopardising your purchase. Having an indemnity insurance policy in place protects you against the costs of having to deal with the issue, whether that’s a costly repair, legal costs or even losing some of your property’s value. It also allows you to continue with the purchase rather than holding everything up while trying to investigate or resolve the problem.
An example of a potential issue when buying a property is that the seller may have had an extension built. However, during the conveyancing process, it’s discovered that they are unable to provide any documents to prove that planning permission was granted. There’s a possibility that a third party, such as a neighbour, may raise an objection about the extension in the future. At that point, you’d be faced with a legal claim and costs as the property owner. Indemnity insurance, however, pre-empts that, covering you against these factors.
What does indemnity insurance cover?
There are many potential legal issues that indemnity insurance can protect you against. Whilst the risk of any of these occurring is low, they could be costly if they become an issue in the future. Having indemnity insurance means you don’t need to worry about trying to resolve them. The potential issues you may face are detailed below.
- Planning permission: Indemnity insurance covers you when there’s no documentation to prove that planning permission was granted or complied with when building work was carried out on the property.
- Building regulations: If the paperwork relating to building regulations is missing or incomplete, indemnity insurance covers the costs of any work that may have to be carried out to address the issue.
- A restrictive covenant: Your property may be limited in its use. For example, you may not be able to build an extension or an outbuilding, you may not be able to keep livestock or there may be restrictions on who you can sell it to. If the restrictive covenant has been breached by a previous owner, this insurance covers you against a loss in the property’s value and any legal expenses in the event of a claim.
- Absence of easement: If you can only access part of your property by crossing over another person’s land – for example, if you need to walk through your neighbour’s garden to reach the drains – indemnity insurance covers your legal costs if that person tries to stop you from having access.
- Chancel repairs: You may have to contribute towards repair costs for the local church if the property you’re buying is in the parochial church council boundary. Indemnity insurance protects you against paying these costs.
- Insolvency: If someone has given you a gifted deposit to help you buy the property, you may be required to have indemnity insurance. This covers you against a claim made on your property by creditors should that person go bankrupt.
- Missing deeds or documents: Indemnity insurance covers you if the deeds or documents relating to a single property are noted in the Land Registry entries but are missing. This cover is necessary because the deeds or documents may contain information that negatively affects the property.
- No build-over agreement: The property you’re buying may have been built above a sewer or within 3 metres of one. Indemnity insurance provides cover if a build-over agreement isn’t in place from the water authority.
- Indemnity for a boiler: If an installation certificate for the boiler cannot be produced by the seller, an indemnity insurance policy covers this. However, it’s best to ensure the boiler is safe and, therefore, it’s advisable to ask the seller for a gas safety certificate. Having indemnity insurance doesn’t cover the cost of repairs to the boiler or a replacement one.
- Indemnity for windows: Since 2002, a FENSA certificate has to be provided for new windows installed in a property. This legal requirement in England and Wales confirms that the fitting of the windows complies with building regulations. If the certificate is missing, indemnity insurance covers you against any claims made by the local authority.
Who does indemnity insurance cover?
As well as providing protection for you as the prospective new owner, indemnity insurance also covers any subsequent owners that the property is sold to. When you’re using a mortgage to finance your purchase, the insurance covers the lender too.
Our mortgage and protection brokers – located throughout Kent, London and Edinburgh – are here to discuss your circumstances and provide you with impartial advice on indemnity insurance. As experts in financial protection, they will ensure you’re fully aware of what is and isn’t covered with this type of insurance policy. To speak with one of our protection consultants, give us a call on 01322 907 000. They will be happy to talk through your concerns about possible legal issues with the property you’re buying and explain how indemnity insurance can financially protect you. If you prefer, send an email to us at firstname.lastname@example.org or an enquiry via our contact form. We’ll reply to you as quickly as possible with more information about the financial protection products we offer.
How much does indemnity insurance cost?
The cost of this insurance depends on the value of the property you’re buying as well as the type of issue the policy is to cover. A policy that covers you against chancel repairs, for example, may not cost much at all. A policy that protects you against a lack of planning permission and missing paperwork for building regulations, on the other hand, may cost you hundreds of pounds.
Unlike other types of insurance, you pay a one-off fee and your policy lasts indefinitely. This means you don’t need to worry about paying monthly or annual premiums.
Who pays for indemnity insurance?
There’s no set rule as to who should pay for this insurance and you can usually negotiate with the seller about this. On the one hand, having it in place benefits you as the new owner so it makes sense for you to pay for it. On the other hand, the seller may have caused the issue that the policy will cover so they should pay for it. As the issue could potentially hold up the entire transaction, the seller may agree to pay for the indemnity insurance to ensure their sale doesn’t fall through. Alternatively, you may agree to pay half each of the cost of the policy.
Pass on your policy when you sell the property
As mentioned above, the indemnity policy lasts indefinitely. Regardless of who pays for the policy, it covers the property rather than the individual. This means that you can pass it on to the new owner when you sell the property in the future. Just be aware that if the value of the property increases significantly, an additional premium may need to be paid to ensure the cover is at the right level.
The validity of your indemnity insurance
If you reveal the issue that your indemnity insurance covers to a third party, you will invalidate it. For example, an extension may have been built despite a lack of planning permission. If you then seek retrospective permission, the policy will be invalidated so that you’re left unprotected if a claim is made against you.
Do you need indemnity insurance?
Your solicitor will advise you of any potential legal issues you need to be aware of with the property you’re buying. It’s not a legal requirement to have indemnity insurance if these issues exist and there’s generally a relatively low risk of any claims being made. However, should a legal challenge be made against you, the issue could be incredibly expensive to resolve. If an issue is identified, your lender may insist that you have indemnity insurance in place before releasing your mortgage funds.
You can also get indemnity insurance to prevent the property transaction from being held up. If an issue comes to light, it may take a considerable amount of time to investigate and resolve. An indemnity policy stops the process from being delayed, allowing you to complete as planned with peace of mind that you’re covered.
Protect against potential legal costs with indemnity insurance
When your solicitor has flagged up a potential legal issue that cannot be resolved quickly, indemnity insurance offers you a solution. It ensures you’re financially protected against a legal claim in the future and allows you to proceed with your purchase without any further delays.
At Trinity Finance, we work with specialist providers offering this type of insurance policy. Our mortgage and protection brokers – located in Kent, London and Edinburgh – can find the best indemnity insurance deal for you and arrange it quickly so as not to hold up your purchase. Just give us a call on 01322 907 000 when you’re ready to proceed and we’ll put your indemnity insurance cover in place. For more information about the mortgage and protection services we provide, send your details to us at email@example.com or via our contact form. We’ll reply to you as quickly as possible with more information about our range of competitive products.