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Do You Need an Insolvency Indemnity Insurance Policy?

Have you been asked to purchase an insolvency indemnity insurance policy but you aren't sure why you need one? Are you wondering what the purpose of an insolvency indemnity insurance policy is, and who it protects? If so, you certainly aren't alone. Most homeowners don't have an insolvency indemnity insurance policy and most never need to think about getting one.

When Would I Need an Insolvency Indemnity Insurance Policy?

If you obtained your house in an unusual way -- for example, it was given to you -- which resulted in you paying less than market value for the property, you will probably need an insolvency indemnity insurance policy if you sell the house to another buyer.

You may also need an insolvency indemnity insurance policy if you have an unorthodox title transfer or you are adding someone on to the deed for less than the proportionate value of the house.

Who Will Ask Me to Get an Insolvency Indemnity Insurance Policy?

You will be asked to get an insolvency indemnity insurance policy by the new buyer's solicitor or conveyancer before the sale can be completed. In a situation where you are transferring title or adding someone to the deeds, your mortgage company may require the insolvency indemnity insurance policy to be purchased during the paperwork process. In both scenarios, you will be responsible for the cost.

Who Does the Policy Protect?

Although you will pay for the policy, it actually protects the new buyer against the possibility that you acquired the property in an illegal way. If you are found not to have correctly obtained the property -- and therefore, are not the true owner -- the sale to the buyer may be null and void. The policy protects the buyer's investment in that scenario, or similarly, the mortgage company's investment in case the unorthodox title transfer is later deemed unsatisfactory.

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