Homeowners in the UK have a significant number of insurance options available to them. It is important to consider all of these, as different policies can provide significant advantages, depending on your circumstances.
Sometimes, a UK homeowner may wish to take out a policy which prevents you from incurring certain costs. An indemnity policy is a perfect example of this. Under the right circumstances, this insurance could save you a significant sum of money, and give you peace of mind.
Read our blog below to find out exactly what an indemnity policy is.
What is an Indemnity Policy?
An indemnity policy protects someone from the cost implications of a third party making a claim against any defects with the property they are buying. For example, if the house seller does not provide you with a legally required piece of documentation, and the local authority makes a claim against you, an indemnity policy covers any costs associated with this.
In most cases, a solicitor will advise someone buying a house to take out an indemnity policy, if they suspect that there may be issues further down the line. It is common for this to happen when investigating the potential defect further would be too time-consuming or costly.
Each indemnity policy is different, according to what cover is required, how much for and to what extent. You should also keep in mind that indemnity policies do not insure against the works or maintenance/repair costs – it only covers the legal costs of being challenged by a third party.
An indemnity policy is tied to the property – meaning that it transfers to new owners. This means that the insurance can last indefinitely.
When you take out an indemnity policy, many people are worried about invalidating it. This sometimes happens when you reveal the property defect to a third party. Legal and property experts can provide guidance on how to avoid this situation – and you should contact an independent legal expert directly if you want more advice on this.
What are common reasons for taking out indemnity insurance?
An indemnity policy is often taken out because of a select few reasons.
Firstly, indemnity insurance is often taken out because of an issue with planning permissions. If the homeowner does not have the required documentation to prove that permission was granted for any building work, then an indemnity policy may be taken out. Homeowners may also take out indemnity insurance if certain building regulations were not adhered to during construction work, or if the paperwork was lost.
Indemnity insurance may also be taken out due to issues with a ‘restrictive covenant’. If a property owner’s ability to build extensions is limited, a policy will cover the cost of any claims made against you because of actions by the previous owners.
Fourthly, an indemnity policy can cover any missing deeds or Land Registry documents.
And amongst many more reasons, indemnity insurance may be taken out if you live within the boundaries of a parochial church council, and want to use the policy to cover your contributions to repairing the church.
How much does indemnity insurance cost?
As with most insurance policies, the cost of an indemnity policy can vary significantly. A major influencing factor is the value of the property – and another is the type of issue that you are covering. For example, if you are protecting against a lack of planning permission then it may costs hundreds of pounds, whereas covering against smaller issues will cost less.
You should also keep in mind that your solicitor may charge you an extra fee for arranging indemnity insurance for a house sale. The cost of this additional fee should be taken into consideration, too.
Finally, the cost of an indemnity policy decreases if you have more than one indemnities in one package. You may be able to take advantage of this if the circumstances are right.
Should I take out an indemnity policy?
The best person to advise you on taking out an indemnity policy is your solicitor. Depending on the problem at hand, it may be preferable for you to fix it now – but only if you have the time to do so. If you are short on time, and finances are not particularly tight, then taking out an indemnity policy could be a viable option for you. It is always best to seek independent legal advice before making your decision.
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