What is indemnity insurance and do I need one?

Before exploring the details of property indemnity insurance, here is a quick outline of the key points you need to know:

• Indemnity insurance protects against financial loss from legal property defects.
• It does not cover the cost of physical repairs to a property.
• The policy usually lasts forever and transfers to new owners.
• Sellers usually cover the cost, but this is always open to negotiation.
• Contacting a local council about a defect can instantly invalidate the policy.

What is property indemnity insurance?

Property indemnity insurance is a specific policy that protects buyers and mortgage lenders against financial loss caused by a legal property defect. It covers legal costs and lost property value if a third party makes a claim against you.

When buying a house, your legal professional investigates the property title using HM Land Registry records as part of the conveyancing process. They might find a legal quirk or missing paperwork. As part of this work, your conveyancer will also carry out property searches to identify legal, environmental and local authority issues that could affect the purchase.

Instead of spending months tracking down old documents or correcting historical mistakes, your conveyancer can use an indemnity policy to bridge the gap.

This insurance works as a safety net. It can provide a practical way of resolving the issue without significantly extending the conveyancing timeline.

What does conveyancing indemnity insurance cover?

Conveyancing indemnity insurance covers various legal defects discovered during the property transaction. Common policies provide protection against missing building regulations, lack of planning permission, absence of access rights, and historic chancel repair liabilities.

Because every home is unique, insurers offer specific policies tailored to the exact legal issue your conveyancer finds. For example, an absence of easement policy is used when a property relies on a private road or shared driveway for access, but the deeds do not explicitly grant the owner the right to use it.

You might also encounter policies for chancel repair liability, which protects you from ancient laws requiring homeowners to fund repairs to the local parish church. Another highly common policy covers missing building regulations certificates for older home improvements, protecting you if the local authority attempts to take enforcement action over undocumented building work.

What is restrictive covenant indemnity insurance?

Restrictive covenant indemnity insurance protects you financially if a binding rule on your property deeds has been broken. It covers legal expenses and potential loss of property value if someone takes action against you for breaching these historic conditions.

A restrictive covenant is a strict rule written into the property deeds that limits what you can do with the land. These rules are often decades or even centuries old. Common examples include bans on running a business from home, restrictions on parking caravans in the driveway, or rules prohibiting any alterations to the exterior of the building.

Insurance is recommended when a conveyancer finds that a previous owner breached one of these rules. For example, if a former owner built a conservatory despite a covenant forbidding extensions, the beneficiary of that covenant could sue you or force you to remove the structure. A restrictive covenant policy covers your legal defence costs and any drop in property value, shielding you from the financial fallout of past actions.

Who pays for indemnity insurance: buyer or seller?

The seller usually pays for indemnity insurance because the legal defect relates to their period of ownership. However, there is no strict legal rule, meaning buyers and sellers can negotiate who covers the premium to avoid frustrating transaction delays.

Typically, the buyer's conveyancer flags the legal defect and asks the seller to provide an indemnity policy. Since the seller wants to keep the sale moving and avoid the buyer pulling out, they usually agree to cover the one-off premium.

Indemnity insurance can be one of several additional costs that arise during a transaction, so it is worth understanding what is included in your conveyancing fees.

Negotiations can take a different turn. If a seller refuses to cover the cost, the buyer must decide whether to pay for the policy or walk away. In competitive markets, a buyer might pay the fee to secure the property quickly. Getting your legal team early by comparing conveyancing quotes helps you spot issues sooner, giving you more time to negotiate without pressure.

Do buyers need an indemnity policy when purchasing a house?

You will likely need an indemnity policy if your conveyancer finds a legal issue they cannot resolve quickly. Mortgage lenders often require a policy before releasing funds for your purchase.

If you are buying a property with a mortgage, your conveyancer acts for both you and your lender. They must follow the strict rules set out in the UK Finance mortgage lenders handbook. If a legal defect poses a risk to the value of the property, the lender will not release the mortgage funds until that risk is mitigated.

Even if you are a cash buyer without a mortgage lender, purchasing a title indemnity policy is recommended. Without it, you take on the full financial risk of the legal defect. When you sell the property, the next buyer will likely demand a policy, so you will pay for it eventually.

Does indemnity insurance fix the underlying property defect?

No, an indemnity policy does not fix the actual physical or legal defect. It just provides financial compensation if you suffer a loss because of the issue, such as a local authority taking enforcement action against your property.

Many home movers misunderstand this distinction. If you buy a house with an extension lacking building regulations approval, the indemnity policy does not approve the extension. If the roof collapses due to poor construction, the policy will not pay for repairs. It only covers you if the local council takes legal action for missing paperwork.

Because indemnity insurance offers no protection against physical property flaws, a home survey can help identify problems with the condition of the property. You can easily compare property surveys to ensure the building is structurally sound before you commit to the purchase.

Pro tip: Never contact the local council or any third party about a legal defect if you plan to use an indemnity policy. Doing so alerts them and immediately invalidates any existing or future insurance cover.

Will an indemnity policy affect the house move?

Arranging an indemnity policy is usually quick and rarely delays your house move. Your conveyancer can often set up the cover online in minutes once both parties agree on who pays the one-off premium.

Because the process is streamlined, discovering you need a policy should not interfere with your moving timeline. You do not need to pause or delay organising your move.

Once your conveyancer confirms the policy is ready to be issued on completion, you can proceed confidently with your moving plan. If you’re approaching the final stages of your purchase, our guide explains the difference between exchange of contracts and completion and what you need to arrange at each stage.

Once your completion date becomes clearer, you can then compare removal quotes to help secure your preferred moving date without any last-minute stress.

Summary

Property indemnity insurance is a key tool used by conveyancers to keep property transactions moving smoothly when historic legal defects appear. While it does not repair physical issues with a home, it provides important financial protection and satisfies the strict requirements of mortgage lenders. The seller usually covers the cost as a one-off premium, and the policy typically lasts for the entire lifespan of the property.

If you are preparing to buy or sell a home, having an expert legal team on your side is the best way to navigate title defects and insurance requirements. Take control of your move today and get a conveyancing quote, compare property survey quotes, or compare removal quotes through Moving Compared.

Disclaimer: This article is an informational piece designed to explain the mechanics of property indemnity insurance during the home moving process. It does not constitute legal or financial advice. Readers should always consult a qualified financial adviser or licensed conveyancer regarding their specific circumstances.