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Do I need building indemnity insurance?

A building indemnity insurance policy protects property buyers when a problem in the legal title cannot be resolved. Under the indemnity insurance policy, the insured party is indemnified by the insurer against any specified costs or losses, which may occur in the future.

For example: You buy a house with a new conservatory that was built without planning permission. It should be fine, but there is a slight risk of the local authority prosecuting the new owner. That’s where an indemnity insurance policy can help, it will cover any loss suffered by prosecution.

So do I need indemnity insurance?

An indemnity insurance policy isn’t always the best way to resolve issues with the property or defects in title. The best solution (in legal terms) is to try and resolve the problem. However, resolving defects in title can be a very expensive and time consuming process.

So if the defect is too difficult to fix, indemnity insurance is recommended. The implementation of indemnity insurance is common practice for property transactions. Your conveyancer will be the best person to advise you on whether or not you should get a building indemnity insurance policy.

Who pays for the indemnity insurance?

If indemnity insurance policy is required, normally the seller is asked to pay for the indemnity insurance policy. Sometimes the seller might refuse to pay for the indemnity insurance. So there might be some negotiation needed between the buyer and seller where they might pay 50/50.

Mortgage Lender Approval is Required

You can’t hide any potential defects or issues effecting the properties value from the mortgage lender, that’s technically mortgage fraud. So your conveyancer will seek approval from the lender before proceeding with the transaction.

Important note: It is usually a condition of each indemnity insurance policy that the existence of the policy is not divulged to a third party. Only the mortgage lender, buyer, seller and conveyancers should know about it. This is so that the local authority doesn’t get informed of the potential defect.

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