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Insolvency Indemnity Insurance: What is it For?

Insolvency indemnity insurance is most often asked for by a buyer's solicitor or mortgage broker during sale of a property. In many typical cases, the insurance is requested because the current owner of the property was gifted it, inherited it, or acquired it in some other way that resulted in the owner getting the house significantly under market value or in a non-traditional manner.

The danger is that at some point in time, the way the original owner received the property could be set aside. The original owner may be found not to be the true owner of the property at all. The knock-on effect of this action would be that the sale to the next buyer might then also be set aside. Insolvency indemnity insurance protects the subsequent buyer in the event this scenario occurs.

Another situation you may be required to purchase insolvency indemnity insurance is when you transfer the title of a policy or add someone to the deeds of the property. Again, this is to protect the parties involved and insure the transaction against a later claim that the action was improper. In this case, you are likely to be asked to buy the insurance by your own mortgage company.

In this second scenario, the insolvency indemnity insurance policy protects the lender -- the mortgage company -- against future action under the insolvency act. Because the party transferring the title has technically given away some of their assets for a lesser value, the policy protects the lender's investment in case the transfer is later determined to be an illegal attempt to "hide" assets from being taken if the person goes bankrupt.

 

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