Insolvency Indemnity Insurance
10/03/2020
(Last Updated: 21/02/2023)
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4 min read
Insolvency indemnity insurance is a requirement for most mortgage lenders where the title to the property is subject to a deed of gift or if the previous transaction completed undervalue within the 5 year period. You can read our article here on the process for transferring property undervalue and What happens if a joint owner becomes bankrupt?.
The risk covered under the insurance is for a transfer of the title to the Property that may be subject to the provisions of Sections 339-342 of the Insolvency Act 1986. Unlike building or car insurance, you are unable to obtain your own Insolvency Indemnity Policy: you must obtain the insurance through your solicitor and the seller will also need to provide a Declaration of Solvency.
Does your mortgage lender need Insolvency Indemnity Insurance?
You can see on the Council of Mortgage Lenders what your mortgage lender requires. In most cases the mortgage lender states:
"If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9)"
What is the cost of Insolvency Indemnity Insurance (Current Transaction)(Lender)
The cost of the policy varies depending on the value of the property, your solicitor and the indemnity insurance provider they use. The following is an estimate for different property values:
Property Price | Estimated Price* |
Up to £75,000 | £70 |
Up to £100,000 | £75 |
Up to £125,000 | £80 |
Up to £150,000 | £85 |
Up to £175,000 | £90 |
Up to £200,000 | £95 |
Up to £250,000 | £100 |
Up to £300,000 | £105 |
Up to £350,000 | £120 |
Up to £400,000 | £135 |
Up to £450,000 | £150 |
Up to £500,000 | £163 |
Up to £500,000 | £163 |
Up to £550,000 | £177 |
Up to £600,000 | £190 |
Up to £650,000 | £206 |
Up to £700,000 | £223 |
Up to £750,000 | £239 |
Up to £1,000,000 | £255 |
* Prices are subject to change and are only an estimate. You solicitor may charge a fee for arranging the indemnity insurance on your behalf and this ranges between £60 to £240 INC VAT
What does the insurance cover?
What is insured? | What isn't insured? |
Losses you incur which arises out of an insured risk and includes:
| The Insurer can refuse to pay a loss or reduce any payment for the loss because:
|
The above is an example of what is and isn't included within Insolvency Act (Current Transaction) (Lender). You policy may differ and you should discuss with your legal representative.
The duration of the policy is for a period co-extensive with the term of the Mortgage.
What losses are covered?
- 1
Reasonable legal and other professional fees and expenses which the Insurer allows or requests You in writing to incur so as to commence, defend or make a settlement in a legal action relating to an Adverse Interest relating to an Insured Risk defined in this Appendix (which may include making an application to a court or the Upper Chamber (Lands Tribunal)).
- 2
Any sum paid pursuant to an Order relating to an Insured Risk defined in this Appendix or with the Insurer’s written consent to protect Your interest in the Property.
- 3
Any Shortfall under the Mortgage advance made by the Borrower.
- 4
The cost of an out-of-court settlement relating to an Adverse Interest relating to an Insured Risk defined in this Appendix which the Insurer allows or requests You in writing to make.
- 5
Any other costs and expenses You incur with the Insurer’s written consent because of an Insured Risk defined in the policy.
What are the restrictions on cover?
The insured will only allow the borrower to use the property for the insured use noted on the policy and you will not, without the written consent of the Insurer:
- disclose the existence of the insurance policy, other than to prospective purchasers, their mortgagees, and their respective legal representatives;
- communicate on any matter regarding an insured risk with any party who, it is reasonable to believe, may have an interest in enforcing an insured risk;
- make an application to any court or the Upper Tribunal (Land Chamber) or the Land Registry in respect of an insured risk.
Insolvency Indemnity Insurance Transfer of Equity
In a transfer of equity undervalue, for example parents gifting property to their children, the solicitor will advise their client to take out the insurance policy to protect the children from the transaction being made void.
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Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
