Buying property is likely to be the biggest transaction we’ll ever make, and it’s not entirely without risk. Naturally, this combination makes the whole process an incredibly stressful business...and that’s before you’ve even thought about packing up all your belongings!
To help alleviate some of the associated anxiety surrounding a property sale, insurance companies offer something called property indemnity insurance (sometimes referred to as building indemnity insurance). These policies offer protection against a range of risks and you may be recommended by your conveyancer to take one out to cover a certain issue.
The problem buyers and sellers face is that this may be the first time they’ve heard of indemnity insurance, so they’ll naturally have questions that need answering, which is where this post comes in.
Let’s begin at the beginning, shall we?
What is indemnity insurance?
In the most basic terms, indemnity insurance is protection against cost associated with issues already flagged up with a property you are about to purchase.
The dictionary definition of indemnity tells us a lot:
security or protection against a loss or other financial burden.
It is, however, important to remember that such policies do not cover things such as repairs or replacements.
For example, say you take out a double glazing indemnity insurance policy because the seller doesn’t have the required FENSA certificate. Said policy would cover you for losses if your local authority demands you remove the windows, but you wouldn’t be covered for the installation of new double glazing to replace them.
In addition, the policy will not cover personal injury claims made due to poor workmanship or for any fines you may incur from a local authority order.
Why do I need property indemnity insurance?
After reading the above, it’s the obvious next question to ask. To keep things simple, you have three choices when your conveyancer unearths an issues with your potential property purchase:
- Take out indemnity insurance to protect yourself from costs arising from the problem in question.
- Have the seller resolve the issue before you buy the property.
- Give up on the purchase altogether and begin your property search again.
In an ideal world, #2 would be the perfect solution, but in reality it seldom works. Rectifying the issue could be too time-consuming or the seller may even be unable to make good on the problem at hand.
Option #3 is a possibility, but problems that initiate a call for indemnity insurance are usually relatively minor, so throwing your cards in now would probably be an overreaction. Point #1, therefore, is often your best course of action.
How does an indemnity policy work?
As you may have gathered by now, indemnity insurance covers the policyholder for one, specific issue. Should there be a future claim made against you by a third party in relation to the issue, you’ll be covered and you won’t face any legal costs. It will also cover any loss of value directly related to the problem you have taken the policy out for.
What does building indemnity insurance cover?
A building indemnity insurance policy covers the policyholder for a legal issue with the property that would be time-consuming and/or costly to put right or simply has no way of being resolved.
The issues covered by indemnity insurance are usually at the lower end of the risk spectrum, but should the worst happen they would be costly to rectify. Many buyers seek out indemnity insurance in order to allow their purchase to proceed and give themselves peace of mind against the worst case scenario coming to pass.
Are there different types of building indemnity insurance?
As indemnity insurance policies are designed to cover single, specific issues, the breadth of what they cover is wide-ranging. Some of the most common indemnity insurance policies include:
- Building regs indemnity insurance
- Planning permission indemnity insurance
- Indemnity insurance restrictive covenants
- Indemnity insurance for windows (double glazing indemnity insurance)
- Boiler indemnity insurance
- Indemnity insurance for loft conversion
- No build-over indemnity insurance
- Land registry indemnity insurance
- Missing deeds indemnity insurance
- Flying freehold indemnity insurance cost
- Listed building indemnity insurance
- Adverse possession indemnity insurance
- Indemnity insurance against the absence of easement
- Chancel repair liability indemnity insurance
- Insolvency indemnity insurance
How much is property indemnity insurance?
With such a broad range of policies covering multiple issues supplied by different providers, putting a definitive figure on how much indemnity insurance costs is an impossible task.
That being said, a ballpark figure for most policies will be somewhere in the region of a few hundred pounds. This is settled by way of a one-off payment, so you won’t have to keep shelling out each year for it.
Who pays for property indemnity insurance, buyer or seller?
There’s no legal obligation for a specific party to cover the cost of indemnity insurance relating to the sale of a property, so the cost could be met by either the buyer or seller.
Although either party can foot the bill, it is usually the seller who is expected to cover the cost. The reason for this is simple: they wish to sell their property and without the necessary protection in place, the buyer is well within their rights to pull out of the purchase altogether.
It is, therefore, in the seller's best interest to stump up for the indemnity insurance in order to salvage the sale. While being landed with a bill for a few hundred pounds may be inconvenient and, frankly, annoying, it’s often a small price to pay as opposed to the sale falling through altogether.
On rare occasions, however, the seller may refuse to meet the cost of the policy. If this is a situation you find yourself in, you have two options: pay for the indemnity insurance yourself or walk away from the deal and begin your property search again.
Can building indemnity policies be passed on when you sell?
This is a great question, and you’ll no doubt be pleased to hear that, yes, you can pass on the indemnity insurance policy when the time comes for you to move on and put your home on the market.
This is because this type of insurance policy is drawn up to cover the property, not the individual who took the policy out, so you can definitely hand it on to your buyer when you sell.
How long do indemnity insurance policies last for?
This will vary from policy to policy and different providers will have varying durations attached to their products. However, in the vast majority of cases, indemnity insurance policies last for decades, so you should be well covered for the foreseeable future. It is, however, something that is worth checking out beforehand.
Bottom line: Do you need indemnity insurance when buying a house?
Not always, but if your conveyancer flags up an issue that could potentially cost you thousands of pounds in the future it would be foolish to dismiss such policies out of hand, especially as the cost will likely fall to the seller anyway.
That being said, it’s important to do your research into the specific issue that needs addressing, as sometimes it might be simpler to fix the problem rather than paper over the cracks with an insurance policy.
If an indemnity policy is required, be sure to check who the provider will be and assess their track record as an insurer before you agree to proceed.
Looking to move home in or around the capital? East London estate agents, Petty Son and Prestwich, have been helping people make their move happen since 1908 and would love to assist you, too. Give our friendly sales team a call today to find out why our family run business has stood the test of time and discover what we can do for you.