Home Indemnity Insurance When Selling a House

Updated 9/11/23

Whether you’re investigating putting your house on the market or you’re already in the process of selling, you may have received a recommendation to purchase home indemnity insurance. This is quite specific property industry jargon and so you may be left scratching your head and wondering whether you really need it. In this guide we’ll give you the lowdown on home indemnity insurance and help you answer questions like: what is an indemnity policy? What does indemnity insurance cover? How much does an indemnity policy cost? And, do I really need indemnity insurance? 

What is an indemnity policy? 

You guessed it, home indemnity insurance is a type of insurance! It usually gives sellers some protection during conveyancing transactions in case there is some sort of defect with the property that could give rise to legal action further down the line. Indemnity policies are typically a one-off payment, and the cover lasts forever.

Buyers can also take out indemnity insurance to protect them against future problems associated with the purchase of a property. Conveyancing solicitors often suggest taking out an indemnity policy when building certifications are incomplete. For example, you may be purchasing a property that is missing a particular building regulation certificate, or the property seller is unable to provide planning permission related to an extension that they built. In instances like this, you can take out a home indemnity insurance policy that will protect you against future losses or claims that might arise as a result of the missing documentation. 

Buyers can also take out insurance that covers them against the potential devaluation of the property caused by any defects, such as subsidence. This type of insurance typically covers both the mortgage lender and the buyer in the event that the property loses value. Whilst these kinds of issues are relatively rare they can generate significant losses, so indemnity insurance provides protection against those losses. 

What does an indemnity policy cover? 

It will depend on the individual policy, but home indemnity insurance usually covers a range of risks from planning permission problems to missing particulars or building regulation certification. We’ve compiled a list of the most common indemnity policies here: 

1. Planning Permission: if there has been building work completed without evidence of planning permission, indemnity insurance would cover you against costs that could arise due to claims from a neighbour or the council for example. 
2. Building Regulations: this type of policy covers against costs that could arise as a result of the removal, correction or alteration of unregulated work. 
3. Restrictive Covenants: sometimes property titles contain restrictive covenants (for example restrictions against building extensions) that might have been breached at some point. If costs are incurred as a result of the breach, an indemnity policy against restrictive covenants covers costs of both loss of property value and any legal expenses that might be incurred fighting a covenant.  
4. Chancel Repair: if your property is located in a parochial church council boundary you can be liable for church repair costs. This type of policy protects against those costs. 
5. Insolvency: if you have jointly purchased your property with another contributor who is later declared bankrupt, creditors could try to make a claim on your property to recover their losses. An indemnity policy would protect against costs that would be incurred as a result of this type of claim. 
6. Missing build-over agreement: if your property is built over, or within, a three metre distance of a sewer without a build over agreement from the water authority then there can be costs incurred to access the sewer. In this case the indemnity insurance policy covers these costs. 
7. Adverse Possession: sometimes land is sold with a property with a title that is ‘possessory only’ and there is no evidence in the Land Registry that it is legally part of the property being sold. This can lead to very costly claims of ownership against the title owner that can be protected against with indemnity insurance. 
8. Access Rights: disputes with neighbours can sometimes lead to them withdrawing property access rights. Indemnity insurance will protect against the costs incurred by pursuing legal action to regain access.

Whilst all of these risks are small, in the event that they do occur they can be incredibly expensive. Home indemnity insurance can give peace of mind to buyers and sellers that they’re covered if one of these scenarios ever occurs. 

Who pays for an indemnity policy? 

This varies and is generally up for negotiation. Indemnity insurance usually benefits the new owner, and gives them protection, so there is an argument that says the buyer should purchase indemnity insurance. However, if there are issues that are clearly caused by the current owner then there’s an incentive for the seller to purchase indemnity insurance to make it more attractive to a buyer. 

It is possible to pass on indemnity insurance that is tied to the property which will protect the new owners, but it’s important to note that there might be an additional premium incurred if the property increases in value.